John and Jennifer Britty were sullen when they first started looking for a Silicon Valley home in January and found only tear-down fixer-uppers in their price range.

Since then, they've had an ironic reversal of fortunes and feelings.

"Every time I hear bad economic news, I cheer. I'm sorry, but I want to buy a home," says Jennifer Britty.

Now that prices are falling, they are biding their time, saving their cash and hoping Silicon Valley's economic downturn won't erase their jobs.

Meanwhile, they are betting home prices still have a way to go before they hit bottom and that soon they will buy more of a home than they first imagined.

That may not be a bad bet.

While the national real estate market continues to be an island in choppy economic seas, Silicon Valley's housing market has crested and is crashing harder than the wave of price plunges that hit Silicon Valley during the last downturn which began in 1989.

That, in part, is because Santa Clara County's jobless rate is up to 4.7 percent and for the first time in six years, surpassed the national rate of 4.5 percent. The area's housing market is suffering year-to-year price declines, values are down by double digits and most homes sell for less than asking.

Silicon Valley and the greater San Francisco Bay Area have fallen on hard economic times because of a heavy dependence on a high-tech economy that's simply out of steam. Poor corporate sales, lackluster revenues and mounting lay offs have replaced the job-churning good times.

Gone are reports of tens of thousands of new jobs created. Gone is the army of freelance consultants unemployment figures don't even count. Gone are inflated salaries puffed up with stock options, signing bonuses and other incentives. Gone is the "wealth effect" of Wall Street winnings once used by more than 20 percent of home buyers to purchase a home.

Doom and gloom reports are back.

Kenneth Rosen, chair of University of California-Berkeley's Fisher Center for Real Estate and Urban Economics, says he expects the median price of homes in the San Jose area to drop as much as 25 percent before the end of next year.

In July, Silicon Valley home prices slipped to their lowest levels this year. What's particularly disconcerting is that this market's price fall is moving at a faster clip than one that began in 1989, the onset of the last major market downturn, according to the latest issue of the Bay Area Real Estate Market Newsletter.

"Santa Clara County's median price (of single-family homes in closed sales) dropped from $577,500 in January 2001 to $528,500 in July 2001, an 8.5 percent drop in just six months. During the most recent previous slow down, the median price peaked at $237,000 in August 1989 and dropped to $216,000 in October 1990, a 8.9 percent drop in 14 months," said the newsletter's author and statistician Richard Calhoun, owner-broker of Creekside Realty in San Jose.

What appears to make the market difficult to call is that during the 14 month period since the current market peaked, it has fallen only 2.5 percent, from a peak of $560,000 in April 2000 to $546,000 in June 2001.

Also, the July 2001 $528,500 medium is only a 3.5 percent drop from the $547,000 medium in July 2000, according to the newsletter. The month-to-month drop from $546,000 in June to $528,500 in July was similar, 3.2 percent.

Calhoun's bearish on the market and says the key comparison is the comparison between the price drop since January 2001 and the 1989 price drop.

"Annual comparisons are more significant as it eliminates the seasonal effects. Based on this statistical analysis and market place activity, I believe property values are off more than 20 percent from January's peak. Actual values fall two and a half to three times more than the median price," says Calhoun.

"During the 1989 slow down median prices dropped about 10 percent yet property values dropped 25 to 30 percent. Indications are this differential will remain same," Calhoun added.

That's good news for buyers like the Brittys.

Affordability has jumped from 16 percent of Silicon Valley households able to afford the median priced home in June of 2000 to 21 percent of those same households able to afford the median priced home in June of this year, according to the California Association of Realtors.

Nearby, San Francisco County's affordability jumped from 9 percent to 12 percent, San Mateo County from 14 percent to 17 percent, Santa Cruz County from 16 to 18 percent and Alameda County from 16 percent to 21 percent, all reflecting the spread of bad economic news that's bodes well for buyers who can afford what's still relatively high home prices.

"With 928 closings in July volume is low. This could be a classic case of sellers being reluctant to realize that the 2001 market is not the same as the 2000 market. After some sellers adjusted their asking price to the lower 2001 level, the buyers started to return to the market place, increasing the number of transactions," Calhoun said.

"But now it appears that the buyers have again pulled back. Will the sellers need to lower their prices again to encourage more buyers? Time will tell," he added.

For more articles by Broderick Perkins, please press here.

Published: August 16, 2001

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.