Sep 09

Nicholas French, Broker Associate, CRS

Volume 4, Issue 3

September 1, 2009

Quarterly Review The Tortoise Wins the Race How is the market? This is probably the most frequently asked question I hear and with the economic uncertainty, it’s no surprise. It is easy to let fear set in or make quick decisions based on a friend’s suggestion, or what you read in the news or some tip. My initial response: be the tortoise. What does this mean, you ask? Slow and steady wins the race. In a time where un-

Nicholas French

certainty is rampant, I suggest stepping away from your daily noise and analyzing your family

Broker Associate, CRS

goals (financial and personal) to maximize your long term happiness. This is the market where 369 S. San Antonio Road

families sit at the dinner table and adjust their spending habits for the current climate. I know

Los Altos, CA 94022

people who are turning in their Mercedes for a Saturn, taking children out of private school,

650 773 8000 (cell)

canceling vacations, selling their home and moving into a rental house, cutting out the shop-

650 247 2999 (office)

ping habit or even adjusting their grocery store spending spree. It is a tough time for many, but

650 947 3099 (fax)

an opportunity at the same time. This is the market that people daydream about saying “if

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only the market had a correction, I’d jump at the opportunity”. Well, it’s here and now the

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issue is fear of what is to come: job situation, savings, and market decline. I tell my Sellers that people say they are ready to buy, but with each house they are looking for reasons not to buy, albeit unconsciously. How can you prepare yourself for the current climate irrespective of price range while making sound long term goals? I hope to get that conversation started for

Inside this issue:

you. This is my chance! This is a common phrase when asking buyers about their current motiva-

The Tortoise Wins the Race

1

The Tortoise Wins the Race (cont)

2

Updated Distressed Property Statistics

2

Zillow Says...

3

tion, though more in the starter price range. In quarter four of 2008 I was suggesting clients start looking for investment property opportunities. At the time it was an unpopular topic – almost nothing was selling and many were waiting for the economic meltdown. It wasn’t in the newspapers and it wasn’t the water cooler conversation. Those clients that bought investment property in Q4 2008 and Q1 2009 are sitting pretty enjoying the fact they bought at what now appears to be the low with almost no competition. They are the Donald Trump’s of the market not listening so much to the white noise but analyzing the investment: properties with 25% down being cash flow positive on day one. I argue that’s a must buy in our area at any time.

Properties Under Contract by Month

3

Ironman

4

There was a time when people wished they could get a cash flow neutral property, well, here is the chance. Keep in mind that the secret has been out for about six months, so it is currently difficult and frustrating for many to go through the painful process of picking up investment properties. Homes in East Valley selling for 20% over their list price – “Wow”, I hear, “The mar-

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4

Updated Neighborhood 4 Statistics

ket is so hot”. What many aren’t stopping to recognize is that the property was listed 60% off peak prices and even after the final sales price is still approximately 50% under peak prices. Sellers, including banks, are figuring out how to transact property more efficiently. Last year (continued page 2)

Quarterly Review Page 2

The Tortoise Wins the Race (continued) was a disaster for the lending market with tons of real estate that they did not know how to sell. Opportunity, yes, did many take the leap, no. Here is the good news; there are still opportunities in the market that should continue for several quarters to come. Did I miss the market? I believe the answer is no. Whether investment property or higher end owner-occupied homes. I think now is a “good enough” time to buy almost any kind of residential property. Now those that have known me for a long time must be shocked at that statement knowing that I don’t believe I’ve ever said those words. Now is a good enough time to buy a property if it makes sense for you. Whether you are looking to upgrade to a larger property or seeking a rental property. I do think the higher end properties have been a good opportunity for a number of reasons: 1) financing is very difficult, thus scaring away much of the competition, 2) sellers and many Realtors are scared, 3) interest rates are fantastic, 4) we are seeing about a 20% drop for the best areas, so here is a great chance. History suggests that the market should not turn over night and continue to climb. Most likely we will see several quarters, if not years, of a fairly flat market. Even in those times the best homes that are priced well will continue to generate activity and sell quickly, and those that may have stigmas or price issues will continue to sit on the market. So don’t feel you have to run out tomorrow and pick up the first property you see, but if you are considering getting into the market update your financing options as you may be sadly surprised at your qualified loan amount. Then get out and see some houses. If you are considering selling, be realistic. Make sure your home shows well and it is priced accordingly. There are many variables that play into preparing a home and pricing correctly, but that’s the basics. To reinforce my earlier point about the current climate I will provide a recent example of a few Saratoga sales: two homes of the same floor plan and equivalent condition and location sold a week apart in July. The properties are the most standard ranch home in the area and one property had a wonderful cul-de-sac location with proper direction for light and no obvious negative features. The other was similar except for one difference; the lot could be argued as a t-section. All things being equal except for that one point. The cul-de-sac home sold 12% over the other property with that one main difference. Arguably the cul-de-sac property sold over value especially for the market, but a buyer felt that it was still of value and fit their needs giving a perfect example that even in the down market certain homes can still bring a premium relative to other sales. Note, this isn’t for all homes J Don’t be a fence sitter, but look at the market with smart eyes and make calculated decisions based on all available facts. There are plenty of opportunities, but take your time and find something that works. With the many economic unknowns including unemployment and uncertainty the market should continue in a similar direction for the next few quarters. The financial world is changing daily and I will continue to stay abreast of the market for my clients daily, so feel free to call me anytime for a market update or inquiry. Slow and steady wins the race.

Notices of New Trustee REOs SOLD Default Sales Aug 24-28 Year to date 2008 YTD

251 9474 8583

257 6697 5160

68 16 1689 226 2433 186

Updated Distressed Property Statistics: Santa Clara County

Volume 4, Issue 3 Page 3

Zillow Says ... Zillow says my property is worth more than I just paid for it, or Zillow shows the neighborhood values, so it must be right. This article isn’t to breakdown the Zillow model but to suggest that you look at more than just Zillow as a source, shall I suggest discussing with a real estate professional :) I’m told Zillow has a marketing budget in the millions to push their model and create a household name for their zestimate. Be careful when using just this as a guideline for determining value. I see constant examples of inaccuracies in the value calculation. I’d say the most accurate is probably for standard track or condominiums, but in neighborhoods with varying property types it is quite inaccurate. Let me give you a specific example: a property in West Menlo Park listed on the market in March 2009. At that time Zillow showed the value at $2,373,500 even though the home was listed on the market for 2,195,000. The home did not sell at the 2.195 price and in July Zillow showed the value at $2,458,000. The property was withdrawn for not selling in June 2009. Just keep this example in mind when you are using Zillow as your source for determining value. As with all analysis you’re only as good as the data, so poor data in, poor results out.

Properties Under Contract by Month: Aug 08 vs. 09 Up 42% This data includes Saratoga, Palo Alto and Los Altos and demonstrates the number of homes that are currently under contract. Though it is only comparing year over year data it supports the discussion that activity is up and one of the main functions is the adjustment in prices. Quarter 4 and Quarter 1 2009 had the fewest transactions because Sellers weren’t being reasonable on their home values; once a few homes started selling for significantly lower prices it was a fairly quick adjustment. It will be hard to find a professional today who wouldn't agree that the high end properties have adjusted. I have done an analysis comparing the same home sales over the past few years and it supports a very close number: I show the high end market adjusted 17-22%, which is in line with the below graph

Nicholas French, Broker Associate, CRS

Page 4

Updated Neighborhood Statistics As you know when I’m not

City

Year

Qtr

No. of Closed Sales

% of List Price

Median Price

Average Price

Avg DOM

showing property or doing

Campbell

2009

Q2

78

96.73

675,000

703,441

83

something else real estate

Campbell

2009

Q1

32

96.94

610,000

641,598

75

Campbell

2008

Q4

43

96.55

725,000

770,930

87

Campbell

2008

Q2

44

97.82

729,500

786,472

60

Cupertino

2009

Q2

94

95.52

1,056,000

1,121,735

58

Cupertino

2009

Q1

30

96.24

1,039,000

1,109,909

63

pleased to have just com-

Cupertino

2008

Q4

33

96.42

1,035,000

1,125,732

68

pleted my first full Ironman

Cupertino

2008

Q2

112

100.76

1,218,000

1,255,704

36

race in the Wine Country. The

Los Altos

2009

Q2

75

94.94

1,500,000

1,598,876

54

event includes 2.4 mile swim,

Los Altos

2009

Q1

27

93.56

1,410,000

1,606,805

67

112 mile bike and 26.2 mile

Los Altos

2008

Q4

38

97.85

1,605,000

1,758,841

42

Los Altos

2008

Q2

98

99.52

1,722,500

1,977,578

25

Los Altos Hills

2009

Q2

18

95.71

2,800,000

2,921,140

100

Los Altos Hills

2009

Q1

5

94.39

3,400,000

4,325,000

111

I’m looking forward to a simi-

Los Altos Hills

2008

Q4

6

93.81

1,762,500

1,769,166

53

lar event next year :) - I’ve

Los Altos Hills

2008

Q2

26

95.36

2,587,500

3,227,576

148

done a number of 1/2 Iron-

Los Gatos

2009

Q2

72

95.01

1,005,000

1,074,057

83

man events, runs, swims, etc

Los Gatos

2009

Q1

35

94.39

1,210,000

1,394,234

102

with my racing friends and will

Los Gatos

2008

Q4

39

93.55

1,200,000

1,617,761

69

Los Gatos

2008

Q2

93

97.38

1,400,000

1,640,783

57

Menlo Park

2009

Q2

102

96.20

1,137,500

1,373,503

60

related I am most likely doing something active like running, or swimming, or hiking. I am

run. The event was one month ago on August 1st and

continue to enjoy my training. If anyone is interested in an

Menlo Park

2009

Q1

50

96.77

915,000

932,095

72

event such as a 10k run or

Menlo Park

2008

Q4

59

97.46

1,010,000

1,155,194

49

bike race let me know and I

Menlo Park

2008

Q2

108

100.75

1,637,500

1,776,388

35

can give you some pointers.

Monte Sereno

2009

Q2

7

95.86

1,699,000

1,883,586

86

Monte Sereno

2009

Q1

3

95.83

1,322,500

1,322,500

188

Monte Sereno

2008

Q4

5

86.58

1,850,000

2,479,000

75

Monte Sereno

2008

Q2

11

96.25

1,780,000

1,888,181

65

Palo Alto

2009

Q2

114

97.63

1,372,500

1,568,627

44

Palo Alto

2009

Q1

50

97.17

1,287,500

1,451,818

56

Palo Alto

2008

Q4

67

98.89

1,350,000

1,473,550

37

Palo Alto

2008

Q2

124

101.38

1,550,000

1,780,321

30

Saratoga

2009

Q2

64

94.0

1,467,500

1,515,139

92

Saratoga

2009

Q1

21

89.58

1,200,000

1,412,446

103

Saratoga

2008

Q4

30

94.77

1,600,000

1,714,317

75

Please Send this Newsletter to my Family and Friends If you know someone who would

Saratoga

2008

Q2

74

98.57

1,656,944

1,814,243

53

Sunnyvale

2009

Q2

132

97.57

740,000

707,024

70

would like to send it to them.

Sunnyvale

2009

Q1

85

97.08

533,000

625,307

77

Please either have them contact

Sunnyvale

2008

Q4

90

98.31

656,500

712,863

47

me or provide me their informa-

Sunnyvale

2008

Q2

175

100.20

905,000

914,567

35

like to receive this newsletter I

tion and I will make contact. My goal is to have this newsletter add value and be an information source for my clients, family and friends. Please do not hesitate to contact me if I can help you with any real estate questions, strategies or if you are seeking higher quality representation