In contrast to this week’s optimistic Time magazine articleon what a great economic engine California is (and we certainly agree that it is!), there has also been a slew of negative U.S. economic news that serves to dampen our enthusiasm.

Consumer Confidence is down by 5.7 points in October; the Dow Jones average is down 250 points for the week; Case-Shiller predicted this past week that US home prices will decline by 11% next year.

Even more dire, in our opinion, is the increasing failure of banks because of  the extent of toxic mortgages on their books. Two recent Associated Press articles (10-24 article,11-1 article) highlight the severity of the problem.  As the general public becomes more aware of the extent of bank failures, consumer confidence is likely to continue to erode along with an accompanying unwillingness to spend.

Are these long-term economic changes or merely temporary slowdowns?  We continue to be concerned about where the overall economy and especially local real estate markets are headed. We will watch the markets closely and continue to comment.

Jeff Stricker & Steve TenBroeck

In the Los Altos, Los Altos Hills and Palo Alto real estate markets many buyers, perhaps most, have a property to sell before they can buy. In the last ten years in was very easy to buy first and sell second – no longer. There are few options today with stricter lending guidelines. However, many people begin looking at homes to buy prior to deciding how they will handle the issue of selling their current home.

Here are a few of the pro’s and con’s of the two basic methods:

1. Buying “Contingent” Upon the Successful Sale of Your Current Home

Pros: You only have to move once. You can wait for the “right” home.

Cons: Sellers will require a higher price. You may lose the home of your dreams if your current home doesn’t sell. You can’t buy the best homes (they usually have other bidders who don’t have a home to sell). You’ll be pressured to sell quickly to keep your target home under contract.

2. Sell First – Then Buy

Pros: You know your home’s final selling price and therefore your budget for the new home. There’s no economic pressure to sell for a lower price. You can rent in your new destination location and become more familiar with it before buying. You can wait for the “right” home.

Cons: If the market improves in the interim, you’ll pay more for the next home. You might miss the “home of your dreams”, if it came onto the market before you had sold your current home. Interest rates could rise and price you out of your target price range.

Bottom Line:

Both methods carry risks. By being aware of the pros and cons of each, you can choose the risks that you’re most comfortable in taking. And, in spite of the inherent stress and difficulty of buying and selling a home, this is a terrific time in the cycle to to trade up. The following story that was featured on MSNBC, captures it well (just move the price point up a bit for our area).

Jeff and Steve

“A drop in the number of people looking for work … some of them may be packing their bags and leaving town to look for jobs elsewhere,” from an article on Oct 16th Mercury News got our attention.

Bailey TenBroeck

While unemployment rates are up in the area, are people really leaving Silicon Valley? Sure, the traffic seems to be lighter on the freeways.  But after checking in with the wisdom of Los Altos and Palo Alto realtor water cooler, there isn’t an abnormal increase of clients selling their homes and moving away.

On the apartment rental front, you’d expect occupancy rates to plunge if there were more people leaving the area right now.  Yet, according to RealFacts which tracks apartment trends, occupancy rates are down slightly in Santa Clara County (94.5% Q3 2009 vs 95.6% a year earlier) and the overall trend for the Bay area is staying relatively flat.  So, yes, maybe a few people are leaving, but this isn’t significant enough to call it a trend in our opinion.  Check out the full story in the Mercury News.

One reason people might be staying is rental rates are plunging from a year ago.  What also might be happening is more home owners are becoming renters.  According to the real restate water cooler, some clients are selling now while the market is strong and will be renting for awhile.

This is good news for Fido.  “The quickest way for landlords with vacant units to find tenants is to accept pets,“  according to Ron Stern, owner and CEO of rental-finding service Bay Rentals as reported in the Mercury News.

Weigh-in, are people leaving the area? If so, what are the primary reasons?

- Steve TenBroeck

Articles appeared October 15th in SF Chronicle and SJ Mercury about current real estate sales in the San Francisco Bay Area and Santa Clara County. They reported Sep sales increases of 8% in the region and 17% in S.C. County from Sep of ‘08. The specifics naturally vary from city to city.

As Realtors and Brokers serving Los Altos, Palo Alto and surrounding communities, we have posted current trends comparing each September over a ten year period for the communities of Menlo Park, Palo Alto, Los Altos, and Los Altos Hills.

In addition, we just published our newsletter with Q3 2009 market data as compared to one year, five years, and ten years ago for the cities of Atherton, Portola Valley, Menlo Park, Palo Alto, Los Altos, Los Altos Hills, Mountain View, Cupertino, and Sunnyvale. While sales are up in ‘09 vs. ‘08, they are down considerably from five and ten years ago.

Potential sellers hearing this good news are most likely to hold onto their homes a while longer expecting values to rise. They’ll be correct in their assumption – until the next bit of economic bad news hits. Rich Karlgaard in Forbes this month warns of the pending commercial mortgage “bomb” about to explode. Just now coming to light is the fact that there are is just as much “under water” debt in the commercial sector as there is in the residential sector.

If we were potential home sellers, we’d sell now and take advantage of this very favorable (for now) market!  There is very likely to be additional corrections ahead. Waiting to sell could be a very costly gamble.

Jeff Stricker & Steve TenBroeck

Home sales have increased while the supply of homes on the market has dropped over the past couple of months in Palo Alto, Los Altos and surrounding area. As potential sellers hear that values are firming, they are more apt to wait (hoping to get a better price later) rather than sell their home now.

Is this a good idea? We don’t think so.

An article in Friday’s Wall Street Journal[click the link to view it] outlines yet another reason why folks shouldn’t be too confident re a quick recovery, in spite of the recent stock market rally and improved consumer confidence.

In fact, the more we read, the more we believe that a good portion of the stock market rally was based upon a combination of the public’s wishful thinking and Wall Street’s investment bankers’ need to buy and sell stocks.

Meanwhile, businesses are still contracting and laying off employees. This recovery is far from over. There is a very high probablility, in our opinion, that local home values could decline further. Therefore, if an owner is thinking of selling in the near future, they would be well advised to do so now while we are in a “balanced” market.

A “buyers” market is likely to be back with us very soon.

Jeff and Steve

The government reported Thursday that the economy shrunk at a revised 1% during the second quarter and estimated that government stimulus spending added 1% to economic growth.  In other words, without stimulus the economy is currently shrinking at a rate of 2%.  Normally such a rate would be considered terrible. 

Our belief remains that the uptick in economic activity and the real estate market will be short lived.  Near term home sellers in the Palo Alto/Los Altos market area should sell now; buyers should buy quality, lock in low loan rates, and plan to hold long term.

Jeff and Steve

Did you notice? As consumer confidence and the number of home sales recently increased, the number of homes coming to market fell?

If homeowners believe that the economy is improving, they will often decide to wait for a better market and/or higher sales prices to put their homes up for sale. 

We believe that there is a great risk of the Palo Alto/Los Altos area real eastate market softening in the near future. This will be a natural result of the continuing recession, residential and commercial foreclosure problems, and a “jobless recovery”. 

Our advice for those thinking of selling is to do so as soon as practical.

Jeff Stricker & Steve TenBroeck

Home buyers are back in action in Palo Alto and Los Altos market areas. During the past thirty days 78 single family homes closed escrow in Palo Alto and Los Altos.  And of those 78 homes, 20% sold over the asking price!  Last year by comparison, 82 homes sold during the same period; 50% of them sold over the asking price.  While certainly not as hot as last year, the last 30 days have been pretty darn good for local home sellers.

Please note:  We’ve just posted our 2nd quarter real estate report featuring statistics, commentary, and analysis on the residential real estate market for the southern portion of the San Francisco Peninsula.  In it we compare Q2 ’09 with Q2 ‘08 sales plus we report the current trending from Q1 ’09 for each area.  Included are sales statistics for Atherton, Portola Valley, Menlo Park, Palo Alto, Los Altos, Los Altos Hills, Mountain View, Sunnyvale, and Cupertino.

Jeff and Steve

Both home sellers and real estate agents are hoping that the recent increase in home sales will continue, if not increase.  The improved stock market has fostered the belief that the economy has bottomed and will now improve going forward. 

We are very skeptical that the improved real estate market in the Palo Alto/Los Altos market area will last more than a few months.  We believe the increase in sales is due primarily to the threat of rising interest rates. It caused potential home buyers sitting on the fence to act rather than risk having their buying power diminished by further rate increases.

In April, Silicon Valley shed about 5,000 jobs!  As long as job losses continue the market will weaken. Additionally, there are many home owners who bought between 2003 & 2005 with 5 year adjustable loans that are now resetting at unmanageable payment levels. They will be forced to sell. And, unfortunately, many of those owners purchased with 10% down payments and they actually owe more than their property is now worth. More foreclosures and short-sales are coming.

In spite of the recent bounce in consumer confidence and sales activity, the correction is not over. Therefore, if you plan to sell during the next 12 months now is the time.

 Jeff and Steve

The interest rate for 30 year fixed loans has risen about .75% during the last two weeks.  This happens regularly as banks are quick to raise rates when they receive economic data signaling a stronger economy and the potential for inflation.  In the past we have seen fixed loan rates rise as much as 1.5% in a week.  Remember as recently as 2000 fixed rates were 8.25%!

 It is also common for rising rates to fuel a burst of home sales as buyers who were sitting on the fence jump in before rates rise further.  The number of homes sold has jumped by 100% from March and April sales, and up by 500% from January and February sales in the south Peninsula market areas (Los Altos, Palo Alto, Menlo Park). 

Jeff and Steve