SILICON VALLEY, CA -- Now that some experts are calling Silicon Valley a buyer's market, what's a buyer to do?

Beware.

Interest rates are low, inventories are bulging and sellers are lowering prices, but even if you land a bargain, buying a home in an emerging buyer's market could throw you a curve that sinks your home's value as soon as the deal closes.

"I would suggest to anyone, you'd better be buying real estate with a long term perspective," in Silicon Valley, said Michael Mullinix, president of the San Jose, CA-based Santa Clara County Association of Realtors.

"It's not a buyer's market, yet," Mullinix added.

Perhaps, but not for long.

There were 3,500 single-family homes for sale earlier this week in Silicon Valley (a region denoted geographically by Santa Clara County, CA). That's double the number less than two months ago, according to Richard Calhoun, statistician and broker-owner of Creekside Realty in San Jose, CA. Calhoun's crunches numbers from Campbell, CA based R.E. InfoLink's data base, the area's regional multiple listing service.

Calhoun's "days of inventory" (DOI) index for the region was at 100 earlier this week, more than three times the DOI in December. DOI is a theoretical number indicating how many days the current inventory will last at the current sales pace, provided no other listings come on the market.

What's more, the California Association of Realtors reported this week that sales of single-family homes plummeted in Silicon Valley, dropping 33.9 percent in February from a year ago.

It sure feels like a buyer's market.

"It's not rocket science," said John V. Pinto, broker-owner of John V. Pinto-Realty World in San Jose, CA.

"When you are going four (listings) to one (sales) in these first few months of the year; when you have brokers like me telling sellers "Mr. Seller it doesn't matter what your neighbor sold a house for three months ago. Why is the buyer going to pay this much when there are bigger and better houses for less?" When you have in increase in inventory by 224 percent from one February to another and a decrease of 34 percent in sales during the same period, that's very much a buyer's market," Pinto insisted.

The bright spot for sellers was the $555,000 median price in February, up 15.7 percent since February last year. However, what's more indicative of the current market is the 3.9 percent price drop from January to February this year.

As spring wanes, prices are expected to remain flat and eventually fall as summer approaches -- contrary to the traditional seasonal trends experienced in recent years. How much prices will fall is anybody's guess, but the trend underscores the end of double-digit price increases and frenzied do-or-die offers coming in at twice the asking price.

Buyers simply don't have that kind of money any more -- especially to gamble on property that could lose value right away.

Wall Street's bear market has knocked the wind out of portfolios puffed up with high tech stocks, the economy is on the ropes and higher energy costs are forcing Silicon Valley's employers to look elsewhere for cheaper operating costs. The resultant, weaker consumer confidence translates into more and more reluctant buyers.

"Buyers have to be careful not to pay too much and sellers have to reassess why they are selling and it should have a purpose to it such as moving to another area, downsizing, up-sizing, but not reaping equity," said Steve Hanleigh, president elect of Santa Clara County Association of Realtors.

Hanleigh and others say buyers should make the same price checks a seller is supposed to make in a tight market to make sure they list with an accurate price. Experts say buyers should check the most recent comparables, keep track of the sale price range for the street and immediate neighborhood where they are shopping, use the local newspaper to monitor asking prices and visit open houses to learn what conditions warrant certain prices.

"It doesn't matter what the seller's neighbor sold their house for three months ago. What's on the market right now is the competition in the market" said Pinto.

Also, buyers should consider buying the least expensive house on the best block, they should try to buy into a community's least expensive neighborhood or move into a city's least expensive community.

The tactic is much like the strategy used to buy and sell stocks -- buy low and sell high. The cheapest home in a neighborhood in buyer's market will eventually give you the greatest return on your investment. History reveals, even in a market headed for the doldrums, things eventually turn up.

"What buyers should know, is that they can purchase a home at a price they can afford with little or no competition from other buyers. If they consider the long term ownership of property, which should include mortgage interest deductions, 10 years from now, they will be very glad they bought," said John W. King, president of Palo Alto, CA-based Alhouse King Realty Inc.

Experts also advise buyers not to insult sellers with low ball offers, but buyers should recognize that many sellers are ready to make a deal.

"As a lender, I see buyers whose money for down payment and closing costs has been drastically reduced by the slump in the stock market. Sellers would be wise to offer to cover buyers' non-recurring closing costs," said Nancy Soule, with National Pacific Mortgage in San Jose, CA.

"After all, lenders will lend 90 percent or 95 percent of the purchase price. Many sellers are reducing their asking price, but a $10,000 reduction in asking price only reduces a buyer's costs to close by $500 if he is getting 95 percent financing. A $10,000 reduction in their closing costs reduces the costs to close by $10,000, which makes up for the declining value of their assets," Soule said.

For more articles by Broderick Perkins, please press here.

Published: March 29, 2001

Use of this article without permission is a violation of federal copyright laws.

A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.