Fall Real Estate 2002

Publication Date: Wednesday, October 16, 2002

Riding the roller coaster
With housing tied to the stock market, buyers and sellers are on a wild ride

by Carol Blitzer

If you want to know how the local housing market is doing, take a glance at the NASDAQ, local Realtors agree. When it dips, so drops interest in buying homes -- especially high-end homes; when it rises, out come the would-be buyers.

This two-bedroom, two-bath home at 1201 University Drive in Menlo Park was offered in September at $795,000.

While some fear the real-estate market parallels the national economy, those in the trenches see closer comparisons to be made from the NASDAQ, as well as a few local quirks.

"You've got school district boundaries, a draft housing ordinance that could drastically change what you build or expand, all these subtle flavors that make this a very locally based market," said Tom LeMieux, an agent with Coldwell Banker in Menlo Park. LeMieux specializes in the higher end properties in Atherton, Menlo Park, Portola Valley and Woodside and tracks their sales closely, checking Multiple Listing Service listings along with corroborated rumors.

In Old Palo Alto, one can find homes such as this one at 601 Seale Ave., listed at $2.25 milion.

What he's found so far this year is an active first five or six months when the stock market was doing better and there was more optimism about a second-half recovery "that's largely dissipated." He points to an active Thanksgiving and Christmas, continuing through the spring, when the stock market got volatile again.

"You could see buyers pull back a bit, still making offers, but more cautious offers," he said, adding that in September he heard of seven offers on a home in the Allied Arts area.

There's a lot more action in the lower end of the market, everyone agrees -- with a few odd exceptions.

"Look at Atherton," LeMieux said. "Twenty-eight percent of sales are in the $4 million segment. Last year it was 21 percent." But, he added, Atherton prices dropped 41 percent between 2000 and 2001, while Menlo Park lost 15 percent. "These are things we can't explain. Some are surprised real estate has remained so healthy over the last few years, one of the strongest segments of the economy. How much longer will that phenomenon be? I don't think we're going to fall off the cliff."

Nearby in Woodside, another Coldwell Banker agent, Ed Kahl, points to the low inventory as another reason prices have remained high.

The tree-bedroom, two-bath home at 993 Ilima Court, Palo Alto, was offered at just under $800,000.

"In some communities, homes turn over every four to five years. In Woodside, the average home sells every 20 to 25 years. Even if their job is moved, they'll keep their home here," Kahl said.

What he's been observing this year is a real slow-down of the high-end market -- what he defines as $5 million and above. Although he points to downturns in the NASDAQ as having a strong effect on the local real estate market, he said "the good news is the real estate prices haven't fallen nearly as much as the NASDAQ." Comparing home prices falling 10 to 20 percent to stocks that are now worth 10 percent of what they were before, he calls real estate "a much safer market."

Although Atherton appears to be recovering this year, Los Altos Hills seems to be lagging.

"(The) Los Altos Hills area is more of new money versus old money. During the dot-com boom, Los Altos Hills was pretty active, but it's not quite as active today," said Jim Gafke, of Primecore Properties Inc. in Menlo Park. "There are still lookers and buyers in Atherton."

Gafke is finding houses on the market longer, but prices, which have already dropped from their 1999-2000 highs, stabilizing over the last year. "There still are a considerable number of buyers, but the buyers seem to be waiting for something, thinking something is going to happen," he said. He hears comments from potential buyers that they're wondering when the real-estate bubble will burst.

There are two approaches to selling houses, he said. Some set the price high, then negotiate down. Others set a lower price and wait for multiple offers to bid the price higher. "Both things are happening in this market," he added.

In the middle of this crazy California marketplace are Palo Alto and Menlo Park homes that sell in the $1 million to $1.5 million range.

Maya Sewald, a Menlo Park Coldwell Banker agent, is seeing "an up tick in sales in late August/early September." She credits buyers returning to the market after taking the summer off, a recognition that interest rates are really low and the fact that inventory is higher than it's been for about two years.

"We probably have twice as many properties as a year ago," noted Bonnie Biorn, an agent with Alain Pinel Realtors in Menlo Park. "That translates to more choice and a shift to a buyer's market. They in turn have more leverage price-wise. There is more negotiating," she said.

Pointing to the many opinions floating about, Biorn said that "sellers are still stuck in the mode they're not getting enough, and buyers think they're not getting a deal. That hasn't changed dramatically. Sellers can't get past the fact that 2000 is gone, and buyers are confident that the market will go down more."

"The market has kind of corrected itself for the most part," but fear on the part of the consumer is holding buyers back, particularly over the $1 million range, said Efi Luzon, an agent with Coldwell Banker in Palo Alto. "Anything between $500,000 and $1 million, if it's priced right, then we can make a deal."

Still some sellers are holding onto 2000 ideas of what a property is worth. Another agent pointed to a Leghorn Street property in Mountain View that has been on the market since 1996. The deal-killer is the asking price: $3 million where the median price for homes is the mid-$600,000s.

"The younger sellers are more realistic, more in touch with the economy," Luzon added.

Although there's never been enormous inventory available in any of the communities from Mountain View to Redwood City, today the higher-end properties appear to be accumulating. According to Los Altos Coldwell Banker agent David Troyer, there's a two-year inventory for sale in Los Altos Hills.

That's more than 200 homes priced above $3.5 million, with an average of five to eight selling each month.

"Sellers have to decide whether or not they really want to sell in that marketplace, because only a true value will be sold. Or new construction, which takes two years to build," he said.

The middle of the market -- say $1 million to $1.5 million -- appears to be more traditional. "Homes that are well priced in good locations are still selling," noted Maureen Hamner, a Coldwell Banker agent in Menlo Park. "People at the higher end were tied to the stock market. Buyers (today) have homes, want to improve location and schools. They're more traditional buyers. There's less demand for high-end homes," she said.

Traditional or not, there's still a lot of volatility in the market. Ray Walton, an agent for Alain Pinel Realtors in Menlo Park, noted that he sold a house in Linfield Oaks for $1.2 million in January. "The next house went for $915,000, (we) had some under $800,000. Then one came on for $795,000 that had 16 offers and sold for just over $1 million. The one next door, priced at $895,000, sold for over $1 million, another for $1.3 million. I've seen a significant return, sort of true all over Menlo Park," he said.

Even with this experience, Walton sees things leveling off, without houses being bid $200,000 to $300,000 over the asking price.

While many of the higher-priced properties are staying on the market for a long time, lower-priced homes that show well are often selling above the asking price, noted Jim Nappo, an agent with Alain Pinel Realtors in Los Altos. He sees Mountain View as a middle ground between the higher priced homes in Los Altos and Los Altos Hills and the lower priced ones in Sunnyvale, Santa Clara and Cupertino.

Today Mountain View has 70 homes on the market; a year ago only 40 percent of those were available, he said.

"What we have now are buyers who are far more sophisticated than buyers in the market two to three years ago. They've earned their money as opposed to the free money before. They look carefully and they buy perceived value," he added.

Still, it's a good idea to present a home well before putting it on the market. By that, he doesn't mean remodeling the kitchen and bathrooms, but cleaning, painting, doing obvious repairs, tidying up the landscaping and getting rid of clutter.

While no one can safely predict the future -- even the immediate future -- most Realtors are optimistic about this local market. "A lot of dot-com people are just a little wary (about a real estate bubble) and think it will happen to housing as well. But, we don't see any signs of that, across the country or here. Statistics are still really good," Biorn said.

Ray Walton summed it up: "We've got a very solid market. Even though the technology industry is insolvent, we've still got Stanford, we're 20 minutes to the airport, San Jose, we've got a fabulous climate, wonderful schools, within 10 minutes we can be in open space. I don't think this area will ever have the bottom drop out."

E-mail Carol Blitzer at cblitzer@paweekly.com