Friday, February 5, 2010

Making Sense of Silicon Valley Real Estate News in the Newspaper

There is an article today in the San Jose Mercury News in the Business Section with the headline: "Home sales of $1 million or more fall from 2008"

First I am going to digress for a moment.

I have a mathematics degree with an emphasis in statistics and probability theory. I know how easy it is to create meaningless statistics. I am a true believer in the quote "Lies, Damned Lies and Statistics" I am not saying that the numbers are not correct in this article but I think they fail to tell you much about the market.

First, if you can remember back to 2008, most of us spent the first 8 months or so of 2008 completely ignorant of the banking crisis coming our way. We were busy living our lives and that included investing in expensive real estate in Silicon Valley. Then after September of 2008 house buying stopped almost completely and it was extremely difficult to get a Jumbo loan.

In 2009 anyone that did not need to sell a house was not selling. The banks were flooding the market with bank-owned property. Buyers were tempted by the great deals but many were also too scared to jump in for most of 2009. However, those who jumped in to the market in early 2009 and bought had an opportunity to get some of those great deals you have read about in the papers. Unfortunately, those deals are gone.

Then a funny thing happened in the fall of 2009, the banks got better at managing their inventory and buyers started to feel more optimistic. They were sensing that the market had bottomed in Silicon Valley and they were wading back in. I kept asking almost everyone that I met at my open houses in the fall of 2009 “Why are you looking to buy?”

The answer I got over and over again was so Silicon Valley....

"If I still have a job now I am probably going to continue to have one and I do not want to miss out on this great market"

To summarize what the numbers are telling me.

In 2008 people bought Million Dollar homes over a 9 month period without knowing about the banking crisis and with mortgages being readily available. In 2009, most bought Million Dollar homes in the later part of the year as mortgages became more available again and inventory became more available. If there are less months of buying in one year (2009) versus the other year (2008) the numbers of houses sold will be lower.

Los Altos, Los Altos Hills and Palo Alto went against the trend and more homes were bought in 2009 than 2008. Why is the topic of another blog entry.

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