2004 A Record Sales, Price Year In Silicon Valley

Written by Posted On Tuesday, 18 January 2005 16:00

Low-interest-rate-driven demand, move-up buyers -- often baby boomers -- and persistent short supplies pushed home sales to a new record while boosting home prices 16 percent in Silicon Valley in 2004.

However, with the hot market already revealing a slow down, 2005 isn't likely to repeat 2004, experts say -- and hope.

Unfazed by home price increases of tens of thousands of dollars some months, home buyers in Santa Clara County purchased a record 15,710 single-family detached homes in 2004, beating the last record of 13,753 sales set during the dot come hey day of 1999.

As existing home sales increased, inventories (including condos and single-family detached homes) fell from 2,966 homes in December 2003 to 1,823 in December 2004, according to San Jose, CA-based Creekside Realty owner/broker Richard Calhoun's Bay Area Real Estate Market Newsletter.

New home sales spurted too, moving to an average 1.24 homes per week throughout the San Francisco Bay Area, up from less than a home a week in 2003, according to the Ryness Report, the regional new home sales monitor.

Back in the resale sector, heavy buying in a short-supply market pushed median prices on closed sales of single-family detached homes to a record $661,000 price in December 2004, up $93,000 from $567,000 in December 2003.

Median prices for condos likewise rose approximately 16 percent or $60,000 from $369,000 to $429,000 during the same period, according to Calhoun.

"I don't like to see huge increases in appreciation," said Jim Myrick, 2005 president of the Santa Clara County Association of Realtors.

"It's like a sprint. Whenever you sprint you have to stop and take a breath. I prefer a marathon race," said Myrick, also broker/owner of Realty World-Realty Solutions in San Jose, CA.

To put 2004's home price appreciation in perspective, while the 16 percent gain is nearly double the average increase in median home prices when year-to-year monthly medians back to 1985 are compared, it's far off the record year-to-year monthly gain of 134 percent which occurred from May 1999 to May 2000, said Calhoun, who analyzes data from Campbell, CA-based RE InfoLink, the area's multiple listing service.

Also, Silicon Valley homes' appreciation is much slower than regions elsewhere in the nation including some northeast and southern markets where rates of appreciation were higher than 20 percent in 2004.

What's more, when compared with the 10-year average rate of home sales, Silicon Valley's current home sales are at 109 percent of the 10-year average compared to 123 percent a year ago.

"It's off by 15 percentage points and that's fairly significant. The market is a seller's market, but with the drop in sales and an increase in inventory, if both continue, you go from a seller's market into a balanced market and into a buyer's market, which is probably good for everybody," said Calhoun.

New home building could put more pressure on the market to stabilize in 2005.

In Santa Clara County, 2,361 new single-family homes were permitted in 2004, more than in any year since 2000, according to the Construction Industry Research Board of Burbank, CA.

The profile of Silicon Valley's home buyer has changed dramatically over the last three boom markets -- first-time home buyers ruled during the late 1980s; suddenly-rich from the "wealth effect" of the technology industry, dot com workers bid up the price of homes in the 1990s and now move-up buyers, often baby boomers, are cashing in on lower rates and -- believe it or not -- cheaper homes.

"The entire market place drives the market with different segments driving the market at different times and right now it's the move-up buyers and part of the reason for that is that the top end went way up during the time when funny money was driving the market, but that came crashing down. People can move up now and get much more for the money," said Calhoun.

Myrick, at 40, is on the trailing end of the baby boomer generation and says he is buying his last home to house his expanded family of four.

He says his timing has nothing to do with what the market is doing but is based on his family's needs.

"I never say wait. I didn't get up one day and say 'Look what's happening to the market.' I had my first child in a small house and then when we had our second child, it didn't matter what the market was doing. We just needed a bigger house," Myrick said.

Myrick, also owner of Everest Funding in San Jose, says even in high-cost regions like Silicon Valley, myriad mortgage programs and low rates continue to make financing easy.

"There are many interest-only and attractive adjustable rate mortgages (ARMs) that let people leverage more house and control ownership in a property for a lot less per month," he said.

If mortgage interest rates don't rise too quickly, the Silicon Valley housing market could see a $700,000 median price before the end of 2005.

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Broderick Perkins

A journalist for more than 35-years, Broderick Perkins parlayed an old-school, daily newspaper career into a digital news service - Silicon Valley, CA-based DeadlineNews.Com. DeadlineNews.Com offers editorial consulting services and editorial content covering real estate, personal finance and consumer news. You can find DeadlineNews.Com on LinkedIn, Facebook, Twitter  and Google+


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