August 2014 Santa Clara and San Mateo counties real estate update

Are we there yet?This was the title of our mid-year market report posing the question increasingly more people may be asking, Have we reached the real estate market peak of this growth cycle?

Earlier and in February of this year we asked the following: Are we reaching a real estate market peak or are we in the early to mid stages of a remarkable recovery and growth period?

We are fast approaching a stunning third year of sustained high demand and low inventory.  In fact, as this month's reports will show, there is less inventory and more market compression at this point than during the same period in both of the past two years.  If the past two years are any indication, these facts should offer a level of predictability in terms of what to expect for the first half of 2015.

In our market areas, limited inventory continues to constrain the number of closed transactions and overall sales volume for 2014.  Most brokerages have seen year over year transaction count decline by approximately 10%.  Meanwhile, sales volume is up between 5-10% based upon increases in the average sales price.

Two other questions posed in our last (mid-year) report:

Q:  Will the Dow reach 17,000?

A:  Yes (reached a high of 17,124 today).

Q:  Will the NASDAQcross 5,000?

A:  Not yet but getting closer (reached a high of 4,575 today).

When looking deeper into the significance of these equity index levels it's important to see how they truly compare to historical levels.  Check out this Bloomberg article suggesting that recent valuations are generally more conservative than past peaks.

Surging U.S. Stocks Echo Dot-Com Rally with Cheaper P/E

What remains most revealing about this month's figures is that fact that our present inventory levels are remarkably lower than August of 2012 and 2013.  As we head into the fall month's and 4th quarter, inventory is unlikely to increase this year based upon seasonal and historical trends.

Therefore, we will begin 2015 with quite possibly even lower inventory levels than each of the past two years.  It may be that we experience the lowest inventory/tightest market we have seen since 1999/2000.

The outlier will be the level of demand.  If buyer demand sustains or increases the probability of a most competitive environment is high.  It is difficult to find a compelling reason why buyer demand would wane between now and early 2015 at least in our market areas.

Let's roll into this month's statistics

In Santa Clara County, the 2-year trends: “sold” Median remains up 32%, the “for sale” Median has risen 26% and the under contract median price is up 24%.

A few other data points to focus on within the Santa Clara County Market Graphs:

1. Median Price

a. 2014 Sold Median $770,000 as compared to $685,000 same month one year prior.  August 2012:  $591,000 (looking for another wow, c'mon man!).

b. In Santa Clara County, an interesting observation is how the Sold Median continues to lead the way (770,000) with the For Sale (listing price) Median trailing (749,000).

c. The number of under contract/pending properties for August remains a bit light (1,476) as compared to same period in 2013 (1,531).

d. KEY INDICATOR:  August 2014: 3,608 properties for sale, prior August: 4,372 (supports more market intensity theory and early 2015 predictions).

e. KEY INDICATOR:  Total new listings this August:  1,543 as compared to 1,753 in August of 2013 (further supporting the declining inventory trend theory).

2. Supply & Demand Units

a. For Sale/Supply in Units 2 year trend easing a bit -5%.

b. Under Contract # of units has trended up nicely these past few months (two year trend now +16%).

c. Total Sold units beginning to make a comeback now basically even 2 year trend-line.

3. Month’s Supply & Days on Market

a. This data point alone offers tremendous insights about market intensity.  Remember that 5-6 month’s supply is widely considered a balanced market.  Meanwhile, we have been compressed between 1.2 and 1.5 MSI since January of this year.

b. Month’s Supply for August in each of the past 3 years:  2012 – 1.9 MSI, 2013 – 1.6 MSI, This August? – 1.2 Month's supply!

c. Days on market has remained in 20-30 day range since January of this year.

4. Sales Absorption

a. A good indicator of increasing year over year market momentum/demand, SCC has held at between 37 and 43% since January (25% PUC considered balance).

b. This August:  41%, August 2013: 35%, August 2012:  32%

San Mateo County (class 1 & 2): Two year sold median price trend remained up 35% with the for sale median price up 20%.

1. Median Price

a. 1349 total available properties for sale this August as compared to 1606 same month last year.

b. The Sold Median price stood at $864,000 this past month.  This was compared to $820,000 last August and a remarkable leap from $650,000 just two years ago.

c. The For Sale (listing price) Median continues to lead this county (899k) as compared to the sold Median price (864k).

2. Supply & Demand Units

a. For Sale Inventory in terms of # of listings trending down (-13%), while the number of sold swings into positive trending (+7%) and under contracts/pending also up nicely (+21%).

3. Month’s Supply & Days on Market

a. Incredibly, we hit 1 month's supply at the end of this August.  MSI has ranged between 1.0 and 1.7 throughout this year.  This August marks the lowest level over these past two years.  In comparison, August 2013:  1.5 MSI, August 2014:  2.1 MSI.

b. Days on market remaining between 20 and 30 since January of this year.

4. Sales Absorption

a. Percent under contract has been in an intense range and peaking at 45% this August! - August 2013:  37%, August 2012: 30%

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