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 Unlike some of the cities within Santa Clara County, the numbers for Santa Clara County in general are very strong.
However, the county is still showing all the indicators that we would expect to lead up to a drop, or at least an extended flattening in home prices. So far, we have not seen this.
But with a huge inventory, slow sales and increasing days on market, it would seem to be just a matter of time before these elements catch up with us and bring down average home prices.
Supply And Demand
The numbers tell the same kind of story that we have been seeing for months. Inventory is up by 17.4% from the same time last year.
The number of homes sold is down by 21.7% when compared to this time last year. The number of homes listed for sale in the month of march did go down, but only by 9.0%. Hardly enough to offset the low sales and high inventory.
All these numbers would have anyone concluding that the average price of a home is down, but as we will see shortly, that is not the case.
The same numbers for recent months show us a fairly clear trend. Now you need to understand that seasonal influences of Summer and Winter - but when you take those into account, you can see that we are still seeing an increase in the number of homes on the market. With these flat sales and homes continually being added to the market, the inventory just continues to grow.
Also keep in mind that the dip in inventory we saw in winter is normal for the season. Sellers tend to take their home off the market during this time and owners considering sellers are likely to wait till summer is over before listing their home for sale.
Home Prices
When we look at the month of March in previous years going back to 1998, the trend is pretty clear. We have seen an increase in the average price of a home each year going back to 2002.
From 2006 to 2007, the average price of a home in March increased by 13%. So despite all these other market forces, Santa Clara County real estate has still seen double digit increases in the average price of a home!
There are some suffering cities in the county where average home prices are actually down, but these numbers make clear that the county in general is doing well in regard to average price.
Even when we look at the numbers over previous months, we can see that home prices have remained steady and growing, particularly if we take into account seasonal influences.
In fact, just between February and March we saw the average price of a home increase 9.7%. Pretty amazing performance when you consider what the inventory, sales and listing numbers were for that same time period.
However, it is important to realize that cities within the county were showing these exact same types of numbers in previous months and they eventually have seen average home prices drop. As these factors chip away at sub-markets in the county, it is easy to see that eventually, this trend is likely to more broadly effect the county and bring down the average price.
Days on Market
 Another important factor in measuring a market is how long it takes for an average home to sell. In March of 2007, it was taking 57 days to sell the average home. Homes priced below the average were likely tos ell more quickly and homes above the average price were likely to sell after a much longer time on the market.
From 2006 to 2007, it taking 35% longer to sell a home in March. The time it takes to sell a home has been increasing since 2005. In fact, the time it takes so sell a home has increased by 119.2% since 2005!
However, in the past (2002 and 2003 for instance), it was taking even more time to sell a home and during that time, home prices remained flat after dropping off from 2001. If we look at these past market changes as a guide, it would seem to indicate that some sort of downward adjustment is coming.
When we look at these numbers for the last few months, the trend is pretty clear. Adjusting for a drop in days on market in summer and an increase in winter, we see that there has still been a general increase - as the year to year numbers suggest. But notice how marked the increase was at the end of 2006. The current trends would indicate that 1) we will recover more slowly than last year and that 2) while we may see some short term drops in days on market, we are likely to see increases when compared to previous years.
How Close To List Price
In the month of March, sellers in Santa Clara County were getting 99.73% of their asking price.
With the time on market and inventory numbers, this is showing that sellers are willing to trade time for getting closer to their asking price. However, as sellers needs to sell their homes becomes more urgent, we can expect to see patience giving way to lowered prices.
Final Thoughts
I think we are seeing a turning point approaching for the county. In my community of Morgan Hill, we saw our first year where the average home price was down from the previous year.
This is also true in other outlying areas of Silicon Valley. I believe that it would be expected to see this kind of thing happening in outlying areas first, before the trend catches up with the county in general.
If we look at previous years in which home prices in Santa Clara County went down, we can see that there seems to be a "hot spot" when the inventor and days on market numbers hit a certain point. I would guess that we will hit that point later this year. It would not surprise me one bit if in 2008, we are seeing the kind of market we did in 2002 when prices dropped from the previous year and stayed flat for the following year as well.
Still no crash seems to be looming and the market seems to be slowing gradually rather than plummeting.
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