Fall Real Estate 2009

Publication Date: Friday, October 9, 2009

Sink or swim?
Downturn in home sales make buyers look longer before they leap

Prospective homebuyers are starting to dip their toes in murky real estate waters, but few appear to be willing to take the leap into the pool -- yet.

Since the stock market melt-down of nearly a year ago, local real estate has been struggling to stay afloat, with slowed-down sales, even with lower prices.

Median prices for the first six months of the year have sunk. Palo Alto and Portola Valley have fallen 11 percent over two years, while nearby Menlo Park and Mountain View have dipped 19 and 18 percent respectively.

The only exceptions are Los Altos Hills, which rose 9 percent, and East Palo Alto, which fell precipitously by 62 percent.

Contributing to buyer wariness is uncertainty about qualifying for loans and a reluctance by sellers to recognize a downward-changing market. While Realtors expect higher-end properties to take longer to sell, even entry-level homes aren't flying off the shelves.

What might have been enticing in the more competitive market just a couple of years ago, sits. And sits. And sits.

David Kucera of Santa Clara Properties is handling an entry-level Palo Alto listing: a 987-square-foot, two-bedroom, one-bath home on Embarcadero listed for $749,000.
After three months, the price has been lowered twice. "We've held open houses about 80 percent of the weekends. Traffic was a little slow in June-July. Buyers are interested, but there are no offers," he said.

Some of the lower-end properties are just odd ducks: That home on Embarcadero lies rather close to the Highway 101 onramp. Another on Park Boulevard backs onto the railroad tracks. In mid-September there were no offers, but plenty of expressed interest for the two-bedroom, two-bath home.

"The price ($797,000) is very attractive to people who want to get into Palo Alto. ... The house is small, but the lot is pretty good size," Cindy Hung of Intero Real Estate Services, Cupertino, said.
In Mountain View, the least expensive house on the market in early September was a two-bedroom, one-and-a-half-bath home on Jackson Street. At $389,000, Realtor Diane Schmitz from the Sereno Group, Los Altos, described it as a "teardown, really land-value only. The house is uninhabitable."

In this case there's a second lot behind, also suitable for building, she said, but more people want the front parcel. "They thought they could live in it. ... It's a great property for somebody who wants to build -- faces Jackson Park, two blocks from downtown, near Caltrain, light rail."

Sharon Lambert of Campi Properties, Los Altos, has been hoping to close an entry-level sale in Mountain View for months. First listed at $575,000, the price was lowered to $450,000 and was offered as a short sale, where the bank must agree to accept less than the amount of the mortgage. Two offers were sent on to Bank of America.

"It's been sitting at the bank for approval for about 100 days," Lambert said; it was due to go to a negotiator on Sept. 11. A few days before that, the bank called to say paperwork was missing, so she re-submitted it. Then the bank decided to send out another appraiser.

"I call every week. It's nuts, it's crazy. ... If we don't get approval, I'm done with the property," she said, adding that most agents won't work on short sales.

Schmitz eagerly anticipates the usual surge in inventory after Labor Day. "Buyers are a little bit more hesitant; they're worried, there's a lot going on in the world right now," she said, adding that she's been very busy this year.

At the opposite end of the market, which traditionally sells at a more leisurely pace, house sales are happening, but at that slower rate, Realtors agree. While prices have dropped in Atherton, Woodside and Portola Valley, only half the number of houses were sold in the first half of 2009 (See chart).

Realtor Bonnie Biorn, with Coldwell Banker, Menlo Park, who is handling an Old Palo Alto home on Waverley Street, notes, "This year has been extremely different. The economy creates a lot of uncertainty. When they (homebuyers) are uncertain, they tend to hold off and wait to see what will happen before making a major move.

"We're really seeing this with a lot of the builders' houses."

While new construction has sold quickly in the past, today those homes wait, just as the older homes do.

"A lot of it is just confidence. We'll need to see better economic news before people are willing to step up," she said.

The four-bedroom, four-plus-bath house was originally offered at $6.4 million. "It's 99 percent new. They kept the architectural detail and flavor," she said, and marketing began before construction was complete.

Still, even with well-attended open houses, "no one has stepped up to make an offer," even at the reduced price of $5 million.

"I don't think it's the price as much as finding someone who really loves it and wants to live in a highly desirable neighborhood," Biorn said.

"If it had been on the market before October (2008), it would have sold; people are just not jumping up right now," she added.
Mountain View's high end is closer to Palo Alto's median.

A home at 970 Gest Drive was offered for $1.85 million in September. After four weeks and open houses with lots of traffic, there were no offers, according to Michael Kelley, a Realtor with Kinetic Properties, Los Altos.

"This home, if it were in a Los Altos ZIP code, would already have been sold," he said. While the Gest property has attracted lookers, Kelley notes that the price is high and the property is big for Mountain View. "The home works well, but it's a little out of character for the neighborhood," he added.

Kelley has been seeing challenges with the jumbo financing market -- difficult to obtain, stricter criteria -- that has "thinned the market. Even people capable of making payments do not qualify in today's market, or loans that they would qualify for are no longer available," he said.

Sometimes sellers simply miss their opportunity by clinging to what they thought was a fair price -- in a changing market.

Soli Saatchi, of Alain Pinel Realtors, Los Altos, thought she had sold a high-end Mountain View home a few months ago, which is listed for $1.73 million. "It's a very different house than all the others. It has the biggest lot, a gorgeous guest house. It's almost two homes," she said, but an offer fell through at the last minute.

Kathy Bridgman, with Alain Pinel Realtors, Los Altos, has been working on selling a high-end Mountain View home on Milton Court for more than six months.

Although the sellers got multiple offers, "extremely close" to the original asking price of $1.9 million, they turned them down, thinking multiple offers should translate to "over asking."

"Then the market just dropped. No one was looking at houses because of the lending situation and stock market," Bridgman said.

The house ultimately sold at close to the new price -- $1.7 million -- in September.

"They got an all-cash offer and they took it, because we don't know how many years it'll take to get up to the original asking price. It was a fair offer," she added.

Bridgman is optimistic about the current market: "Houses are selling and prices are fair asking prices; we've adjusted to the 20 percent drop."

She says buyers still fear that if they buy now, they might lose money, but "with lack of inventory and interest rates down, we're seeing a lot more houses sold, especially in good areas with good schools."
Before, open houses brought lookers rather than buyers, but they were accumulating knowledge.

"(The market is) getting better: That's the good news. ...It was crazy when it was going up so fast, but at least it wasn't as painful coming down."

Not every property sits.

Lyn Jason Cobb was considering offers in early September for a four-bedroom, $6 million Menlo Park property on Roberts S Drive. Built in 1948, Cobb said, "It's original owners, in a phenomenal location, extremely well-built, a unique property in a unique location."

And Miles McCormick, a Realtor with Keller Williams, Palo Alto, had a slightly different take on the high-end market: Much of it is not reflected in Multiple Listings -- an online listing site maintained by REInfolink and updated every 15 minutes -- but is done through private sales. He estimates that in the over-$5 million range, private sales outweigh MLS sales by three to one.

"If it is a true trophy house, many sellers don't want to go on the market (publicly). Between broker's tour, one open house, you could have 800 to 1,000 people coming through in a week. They don't want to be exposed to that -- and don't need to."

Instead, these homes are sold by Realtors networking with each other.

Given the sales not recorded publicly, McCormick challenges the prices collected by the Silicon Valley Association of Realtors (SILVAR). "There's not enough data to show whether prices are going up or down, because of private sales," he said.

Instead, he suggests looking at what's happened historically to negatively impact the economy in the past. Although the rest of the country may have been hit hard, during the savings and loan crisis in the early '90s, there was little impact in the Palo Alto market.

Likewise when the NASDAQ fell apart in 2000, he said. "Many from out of the area said Palo Alto would drop substantially in price because lots of venture capital and tech people were owning in town. That never happened.

"We're not completely isolated from the rest of the world, but we're relatively well cocooned."

In addition, he added, "Historically, we've not been a terribly leveraged community. Lots of people pay cash" or get smaller loans in proportion to the purchase price.

"Many are not in financial pressure to sell, unlike many other areas in the country."

"This is a very emotional market. ... People are buying their 'dream home' -- though no one gets it in Palo Alto -- and have to be very emotionally connected to it, feel the timing is right for them and their family."




Associate Editor Carol Blitzer can be e-mailed at cblitzer@paweekly.com.

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