June 23, 2009

• Market Statistics
• San Carlos is "hot"
• Palo Alto leads list is closings
• Pending's and the risk
• Are we in a bubble?
City Pending/Show Pending/Do not show Sold
Palo Alto 21 43 39
PortolaValley 4 5 0
Woodside 5 3 0
Atherton 4 10 0
Menlo Park 17 19 2
RWC +$800K 16 10 0
San Carlos 23 19 1
The past 3 weeks has seen some notable changes. The pending does not show, or those offers that removed all contingencies, have dramatically increased. We are either to have an avalanche of sold's within the next week or some offers collapsing, and home back on the market. The risk, as I see it, is FINANCING. I am hearing more comments from agents that lenders are asking for another appraisal, increase in deposit, compensating balances, and or more due diligence in closing a transaction.
What started the buying?
1. Commitment letters for financing were based upon rates of 30+ days ago when interest rates were 1% point lower. "Use it or lose it" is the short answer.
2. Pent up demand caused by the dead zone from November 2008 to March 2009. Buyers walked from the market when the financial system tottered.
3. Cash no longer placed in the stock, bond and or hedge fund market saw greater value in real estate.
I have been asked to explain why is our real estate market vibrant when the rest of the world east of 101 and north of San Francisco and south of Los Altos struggling? Cash is king, alternative investments are lacking, and technology still remains to be the driving power of our employment figures. Once the excesses of the past leveraging era are cured, the substance or firm base of our technology base holds our economy together. Let's look at Telsa versus Ford, GM and Chrysler. The former is building plants in our area and will be hiring people; whereas, the later will be closing plants and laying off people. The RUST BELT continues to erode away.
Our residents are not stock market investors, they may own stocks, but they own them from Venture Capital deals and stock options. Investing to our Valley people come in cash in banks, and treasuries, investments in VC partnerships and then the ties of success: cars, homes and education for their children. That is different from the east coast and the mid west. They are stock and bond investors and to some extent hedge funds, usually fund of funds. When the stock market tanks the mid west and east coast feel it hard and their real estate market suffers; because their economy is based on industrial production and finance.
Are we in a bubble, I don't think so. We just have a stronger and more solid economic base. When the crisis hit in November it was not based upon the same economy of the "29" Crash. People had money in banks, money market funds, and various other cash equivalents. The trust had been broken when Lehman was allowed to fail and the short term paper in Lehman failed. The dominoes began to fall and trust disappeared. Then fell the money market funds, the banks began to shutter and the commercial paper market disappeared. Investors went to the safest paper, the US Government paper. The dominoes not only fell in the US they fell all over the world; we are in a global economy.
Where are we now? Cash buyer predominate the over $2 million market. Atherton homes are beginning to close very quickly. Those sellers who had to sell are now gone; whether that be Atherton, Menlo Park, Palo Alto, Woodside and Portola Valley.
The market of under $1 million gets very hot once you drop down in list price. If I give you San Carlos as an example; the price of $500,000 to $800,000 last days once listed.
A client said to me businesses are closing in SF, the news on the economy stinks and I can't buy a home in San Carlos because I can't move fast enough. It is not the economy it is de-leveraging of the financial system and all those who relied on excessive leverage. The excesses will be eliminated and sound base of our economic system will remain. If our economy is in trouble ask yourself who is buying the IPhones in such unprecedented numbers. Or how can a band make $1 million on 99 cent downloads onto an IPhone IF are truly in a recession? Or how many Telsa's sold at $100,000+. I remember the last big recession in 1974. I bought my first Mercedes for $1000 more than a Ford Fairlane for one simple reason, I had cash.
It is unfortunate that some business will fail, that could simply be the fact that they only existed due to unsound leverage.

Use your common sense when making offers. Do not think that because you are a cash buyer you are going to steal a property. There are other cash buyers in the same situation. Some of whom will pay up to get the house they like in the neighborhood they want. If you are listing or selling a house or plan to sell a house, make reasonable expectations. This is not 2006. If you bought in 2006 and must sell, you make take a loss.

In the next several weeks we will see if pending’ do not show become sold’, or if fails occur and homes are back on the market, or if the pending’ continue. Sellers may see a greater risk by canceling an offer rather than working with buyers. My bet is they work with buyers.

Regards To All