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 Santa Clara County continues to see growth in the average price of homes, despite market forces conspiriing against it.
Inventory continues to rise, sales are down, there are fewer buyers out there looking for homes. Despite all this, we still saw the average price of a home in Santa Clara County increase from the same time last year.
However, we have seen this trend in some of the sub-markets of Santa Clara County. Will we ultimately see home prices drop? Read on for all the latest data.
Supply and Demand
 Again, we see a month that is less about dramatic changes, and more a continuation of trends we have been tracking for months.
When we compare May of 2007 to the same month in previous years, we can see that while inventor is not at its highest point ever, it has shown a long term steady trend toward increasing since 2005.
When compared to last year, inventory is up 20.4%. That is a whole lot of inventory.
If you look closely at the graph, you can see that tiny little brown bar. Well, that is the number of homes that have sold - and its not nearly where it needs to be to keep up with the current inventory. In fact, sales are down 12.3% from the same time last year.
Finally, the number of homes listed is actually off a bit from last year. With inventories where they are, this is a welcome blessing that will not be able to make a dent in the current inventory numbers.
The numbers from years past can give the situation some context. First, we are not in the worst market we have seen in the last 10 years or so in regards to inventory and sales. In 2001 and 2002 we saw much higher inventories. In fact, 2001 saw even worse sales than we are seeing now.
When we look at the numbers for past months, the more recent trending of the data is easy to see. Inventory just keeps rising. Sales remain flat and the number of homes listed each month appears to be flattening after a period of increase. The increase in listings is actually normal for the new year as sellers come out of the holiday season and put their homes on the market.
The sale over the last few months have actually shown a very gradual drop. While we have seen an increase in sales after the new year, this was a relatively small increase.
Home Prices
 Just look at these numbers. If you compare them with the numbers for inventory and sales above, they seem to be at odds with each other. Despite increasing inventories and decreasing sales, the average price of a home in Santa Clara County has increased every year since 2003!
Now I mentioned 2001 before. The reason was because that was the last time we saw numbers similar to what we are seeing now. Note that 2001 was the last year in which home prices fell by any big degree. We did see a small drop in 2003, but that was only the smallest of changes. In fact, the market of 2001 not only brought home prices down, but kept them flat for the next 2.5 years.
Now also note that 2001 did not have the gradual change in inventory and sales that we are seeing now. 2001 was a sudden change in the market that really kicked things in the teeth. 
I suppose you could call the current market a slow boil. It has built up over the last few years. Despite all the market influences, Santa Clara County residents have managed to enjoy increases in sales price. However, it is hard to see how that can continue much longer as things reach critical mass.
When we look at home prices over previous months, the trend plays out much the same. In general, an upward trend in the sales prices of homes. In fact, if you take into account seasonal influences, it is a regular increase.
Despite the low number of buyers and the huge inventory, sellers have not had to move from their asking price on an average priced home. In fact, in May 2007, sellers were getting 100.82% of their asking price! That's right - sellers have been getting OVER their asking price in May 2007!
Days On Market
 Yet another clear indicator of our current market. The das on market has been increasing over the last 2 years. This basically means that for the average priced home, sellers are having to wait longer and longer for their home to sell.
If your home is priced below the average, your home is likely to sell more quickly. If your home is priced above the average, your home is likely to take longer to sell.
As of May 2007, it was taking about 44 days to sell a home. That is an increase of 18.9% from the same time last year.
Again, lets use 2001 as a reference point. We see that in that year, the days to sell a home jumped from 18 days to 39 days. For the next 2 years, it continued to take longer to get a home sold - peaking in 2003 at 59 days on average.
Now lets put all this in context. Selling a home in under 60 days is still pretty manageable. In terms of real estate performance nationally, it is taking far less time to sell a home in our market than in other areas. However, remember that this is the average. Once you get much over that average, the days it takes to sell a home can skyrocket. In homes over $1 Million, I have seen homes still on the market after nearly a year.
Also, keep in mind the difference between now and 2001. The 2001 market was a sudden change. In our current market, these changes have been creeping up for years.
We can get some encouragement from the short term look back at the days on market. They have been in steady decline since Feb of 2007. This is a good sign as we move into the summer selling season. However, we are still at a high number for this time of year.
Final Thoughts
Somehow, buyers are still paying full asking price and more for the average home. It seems strange since there are so many homes out there and so few buyers.
With so much of the market working in the favor of buyers, we would expect to see buyers paying less for homes, not more.
The key at this point is bringing out more buyers. While financing issues relating to the subprime situation are playing a part in keep buyers away, the real key is going to be making a home purchase look more attractive.
The only way to do that is to drop prices. With all the homes on the market, at some point, the sellers that MUST sell are going to have to drop the price on their home so that they can move on. Once that starts happening, more buyers will enter the market. It is actually amazing that we have not seen this happen yet.
With the overwhelming influence of some of the market factors we have looked at here, I would guess that this summer is not going to perform as some are hoping. This could be the turn around year where prices drop. However, average home prices seem to show no sign of slowing in their growth. It is the homes above the average price where movement needs to begin - as those are the homes staying on the market for prolonged periods of time.
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When it comes to the local markets, I know my stuff. I make it my business to know the markets I serve. What's more important is that I share that information with you! Every month I do a complete video presentation covering all the latest important sales data. I do this for Santa Clara County, Morgan Hill, Cupertino, Saratoga and Los Gatos - with more communities being added all the time. Check out the latest data and see what the new developments are in our local real estate market.
Every week, I produce the podcast "Real Estate Realities". Listened to by over 1,400 people a week, this podcast is among those featured on iTunes.
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