November 24, 2005 Weekly Bay Area Real Estate Market Newsletter

Graphic Summary: Allows you to quickly visually see the data presented.

5-year averages This graph shows the three market components (inventory, sales, DUI) compared to a 5-year average. By comparing the same date each year, this graph seasonally adjusts the data. Notice 2005 inventory is increasing rapidly and 2005 sales are decreasing rapidly causing 2005 DUI to increase rapidly. The marked change started October 4th at only 63.1% of the 5-year average and now reaching 97.9% of the 5-year average. 

inventory  sales volume  dui  The three market components, seasonally adjusted by comparing current market conditions to each of the previous years using the same date. Notice inventory is increasing in 2005 compared with each of the past years. Sales had been tracking past years but of have now started to decrease compared to the past years, except for 1999. DUI (the key component) is increasing compared to all previous years. 

1999 2000 2004 These graphs show the current (2005) market conditions compared to the year indicated. The 2005 market is no longer following the behavior of these years or other previous years back to 1998. 

Shifting from seasonally adjusted data to the raw data, things look a lot better. Unfortunately, we believe that the seasonally adjusted data is far more significant because real estate has a strong seasonal cycle.

Inventory (supply)  The number of properties currently available for sale. Inventory has finally started to decrease as of October 22, 2005. This normally happens by mid-July. The current rate of decrease is less than normal. 

Sales per day (demand)  This is the average daily number of initiated sales (offers accepted). Sales have been declining since the Friday before Memorial Day. This is normal. However, the rate of decrease in sales is a little more than normal.

Days of Unsold Inventory (supply/demand ratio) The true key market indicator in a free economy. At less than 60 days of unsold inventory, it is difficult to be concerned. Remember we consider 45-90 days a balanced market. So this is in the middle of a balanced market. The current pattern is of a flat DUI. But DUI is normal decreasing at this time of the year which is why the seasonally adjust data is so poor. 

Percentage Sold price greater than List price  (frequency of overbidding) It is difficult to be concerned when more than 50% of the sellers are getting more than their asking price, but this has dropped significantly since early May at 75% and appears to be starting another drop after being fairly stable from mid-July to mid-October. 

Median List Price  (seller's expectations) It is hard to get concerned when this has been essentially tied with the 1-week record of $742,000 set on July 28th. However, Seller's expectations tends to lag the market changes.

Median Sold price  (reality of market) It is difficult to be concerned about the market when the median Sold price is at $752,000 and the market has been fluctuating between $733,000 and $760,000 since March 2005. But this is reflective of the market 30 to 45 days earlier because of the length of escrow. 

Another key graph that we haven't posted for awhile is our 90-day market indicator. This is where we expect the market to be in 90 days. This has left the good market conditions and has now entered the top of the fair market. The last time this indicator was here was mid-December 2000 through mid November 2001 and prior to August 1995. During those previous periods the market indicator was actually in the poor area or the bottom of the fair market range. Currently, this data is at the top of the fair market range. 

The market continues sending interesting signals that deserve close attention. Real estate is seasonal. Therefore, the seasonally adjusted data is more significant than the raw current data. Unfortunately, this doesn't speak well of the near-term future of the SCC real estate market. 

Each client has to make their own decision on when to buy and sell real estate. We believe real estate has been and will continue to be a good long term investment. 

Because of the holidays we believe that sellers should continue to wait. However, sellers should be ready to place their homes on the market on January 12, 2006. This is because as we look at the data now there is a good chance that the market will peak very early in 2006 like it did in 2001 with the peak being January through March 2001 and likely earlier and shorter duration. The data could change over the next 45-days and a seller can always delay putting the home on the market. But if the home isn't ready for the market this could cost the seller critical time. 

Buyers need to balance their personal needs with the risk of increasing interest rates coupled with a softening market. Basically, we believe that a buyer should not feel any pressure from higher prices, but buyers should move forward because of interest rates provided they are looking at a long term investment. 

The table below compares the current real estate market conditions to each of the past 6 years. The sign ( + = - ) next each year indicates if the current market trends are improving(+), staying the same(=), or getting worse(-) compared to that specific year. Better/worse is determined from the owner's point of view. 

Viewing the three graphs that are linked in the column headings above provides a good overview of the current market conditions. Both 2001 and 2002 were abnormal years and both were weak in the Fall. Notice that 2005 is slowing more rapidly than any past year (since 1998) when using the key indicator (DUI) 

From mid-July through October 20th, inventory was increasing when it is normally decreasing. Although the raw inventory count has finally started to decrease the current decrease is less than the normal decrease. This is continuing to cause an increase in seasonally adjusted inventory. Increasing inventory is a negative market trend. The question remains, why are more sellers than normal coming on to the market? This could be related to Katrina and other natural disasters. Basically Seller that have equity could be electing to remove their appreciation before California gets hit with an earthquake. If these sellers are 2006 sellers that are accelerating their decision to sell, then there might be a shortage of inventory in 2006 causing prices to increase. If they are sellers that would normally not be selling but got spooked into selling, then 2006 could be a flat or declining year. 

Looking at the second graph, the volume of sales had been behaving normally until October 8th. Fortunately, the rate of decrease in volume of sales is pretty minimal. The level of sales is still just above the 10-year average at 104.8%. But remember this is NOT adjusted for any growth. We believe a reasonable estimate of growth is 1.5% a year. Therefore, something around 107.5% would be normal. This indicates that the buyers are still willing to invest in local real estate at nearly normal but decreasing rate.

The third graph (Days of Unsold Inventory) is the most important. With more sellers/inventory than is normal and nearly normal level of buyers that are decreasing, DUI continues to increase. Historically, we have found that DUI changes at about 1 DUI for each day when the market is changing. Recently, DUI has leveled off but the rate of decline is normally increasing as the holidays approach. So this flat DUI could actually be indicating a market change. Note the slope of the DUI comparison graph is essentially the steepest ever. This indicates that after making the seasonal adjustments, DUI has been and continues to increase more rapidly than in the past. Clearly, this is not a good sign for the future strength of the real estate market.

For the time being the market remains strong with normal and slightly decreasing inventory accompanied by essentially normal (although decreasing) sales. This combines to give a DUI of 56.4. We consider 45 to 90 DUI to be normal. Geographically, most areas are in the range of 30 to 75 DUI. Based on price homes under $750,000 still have less than 40 DUI but at 39.5. It is homes about $1.0 Million where the slow down is most noticeable. 

Inventory is now at 224% of the 1999 level. Sales are at 103% of the 1999 level. The most important factor, DUI is at 217% of the 1999 level. (graphic) This indicates that the 2005 market is now significantly less intensity than the 1999 market. 1999 experienced 12.6% appreciation with a peak in August followed by a 4.8% correction in October 1999 before shooting up 33% in early 2000. We don't expect 2006 to see 33% appreciation and we now think 15% is too high. Even our revised guess of 10% is likely too high. That brings our estimate down to a modest 5% estimated appreciation for early 2006. We were expecting a small dip in 2005 to about $730,000 and we got $733,000 in September. Despite the increasing DUI, we expected and got some of the 2006 appreciation showing up in the October data at $741,000. Looking at the weekly moving month, the bottom was on October 20th at $730,000. Followed by an increases reaching $752,000 this week. 

The 30-day median Sold price increased every week between February 17, 2005 and April 21, 2005. From April 21, 2005 to August 18 2005, the 30-day median Sold price has been fluctuating between $745,000 and $760,000. From August 18th to October 20, 2005, the 30-day median Sold price has been declining every week from $755,000 to $730,000. Now the median Sold price has increased the last 5-weeks, except for November 4th. The Sold prices are determined when the contract is negotiated, which is typically 30-45 days earlier. Therefore, the median Sold prices started increasing 2-weeks after New Years through mid-March. Then from mid-March through mid-July prices were essentially flat. Then as the surplus sellers started to come onto the market in mid-July the median Sold price actually started to dip. We expect that this dip will be short in duration and it is possible that the 2006 appreciation cycle with appear during the last couple months of 2005. Anticipating the 2006 appreciation and pulling it forward into 2005 maybe exactly why we are seeing price climb in the last 5-weeks. A word of caution, this is what happened in 2000 and then the market peaked very early in 2001. This may be what is happening and any sellers should be ready to act quickly if the 2000/01 trend repeats itself. Any 2006 Sellers should be ready to move forward on January 12, 2006. 

Inventory appears to have peaked. This is a full 3 months later than normal. Both 1999 and 2004 were good years followed by a good year.  (1999) (2004).  Both years experienced price dips during the summer. We think that 2005 is similar enough to 1999 and 2004 to expect 2006 to be a good year but not as good as 1999, 2000, 2004 and 2005. That means that 15% appreciation in 2006 is unlikely and even 10% for 2006 is questionable. We are beginning to think that 5% appreciation is a better guess-timation still possible. We are also concerned on how long into 2006 the market will be strong. There are starting to be indications that December '05 or January '06 may be a peak. We believe it is too close to the holidays to start selling now. However, a seller should be ready for the second week-end in January in case the market starts to decline. 

DUI climbed 11 days in 3.5 months, from 27.3 on March 23, 2005 to 38.3 on July 7. Then DUI increased an additional 7-days in July reaching 45.0. DUI stayed at this level until the Labor Day Holiday which caused an increase of another 7 days to 52. During October DUI increased another 4 days. November saw a flat DUI currently at 56.4 days. DUI continues to drop less than normal (after seasonally adjusting the data) as it did in October and November, it is likely that the current increases in median Sold price will reverse directions very early in 2006 and maybe even very late in 2005. Even if this happens we believe that the rush of buyers in January will trigger a new round of appreciation even if it is shorter than the 2001 appreciation cycle. 

2005 started out with SCC being the second hottest year. Because the market was slowing less than normal earlier this year May through mid-July, 2005 became the hottest year since we started collecting data in 1998. Since mid-July, the market has been cooling more rapidly than normal. Consequently, 2005 has cooled from the hottest year to the fifth hottest year, with only 2001 and 2002 being worse at this time of the year. The reason for this extra slow-down appears to be mostly associated with an increase inventory although the volume of sales is starting to decrease now. The current increase in inventory could end up causing an inventory shortage early in 2006. It depends on who the current sellers are. However with the current decrease in buyers, higher interest rates and threat to interest deduction, the number of buyers appears likely to continue to decrease. If this trend continues 2006 could be a wash out year for appreciation. 

The magnitude of overbidding peaked 4/21/2005 and frequency of overbidding peaked 5/12/2005. Both the magnitude and frequency of overbidding have been decreasing essentially every week until the frequency of overbidding leveled off on July 28, 2005 followed by a leveling off of the magnitude of overbidding on August 25, 2005. Both the frequency and magnitude of overbidding have decreased slightly more. There even appears to be another decrease with the magnitude of overbidding resuming its drop on October 20th at 101.4% now 100.8% and the frequency of overbidding resuming its drop on November 18th at 58.2% now at 55.8%.

There continues to be a significant number of properties getting re-listed and/or having their asking price reduced. This is an indication that the listing agents are realizing that their listings are not selling as quickly as they thought they would. These price reductions also helps keep the frequency of overbidding high. It is clear that the current market peak has past. Sellers that are planning on selling in the near-term should consider waiting until right after New Years. Buyer's should be careful not to over pay at the peak price period. SZC (DUI of 128) and MTY (DUI of 173) appear to be slowing significantly more than SMC (DUI of 57.4) and SCC (DUI of 56.4). Even though the median price for SCC appears to have had a minor price correction the media will remain positive because the media focuses on the annual appreciation which will be significant for the foreseeable future. With a increase in median Sold price for October back up to $741,000,  the media will be positive. Because of the time lag in closing escrows we believe the near-term peak was back on Mother's Day just like 2004. We believe that SCC has passed through the near-term valley. It is unclear on how soon the next peak may arrive. It could be December or January. We believe it is time for buyers to get serious about purchasing before any 2006 appreciation arrives and while there is still a good selection of homes to chose from. Remember real estate remains a good long-term investment. Our bigger concern currently is increases in interest rates. It appears that the ideal window for buyers will be from mid-October to mid-November. The Buyer's window appears to be remaining opened with more inventory than normal and basically flat prices. 

We are NOT expecting a popping of any bubble as we don't believe a bubble currently exists in SCC. Check out these claims of a bubble dating back to 1947. One of the biggest issues with those that believe in the bubble is they compare housing prices to income. We believe it is more important to look at affordability of the housing payments to income. Interest only loans and higher debt ratios allowed by the lenders combined with the lower interest rates provide more room for appreciation. According to Dataquick the typical monthly mortgage payment made in April 1990 was finally reached again in November 2004. Think of how much incomes have increased in the last 15-years. Additional Silicon Valley is built out and buyer demand remains high with a shortage of housing. With the increase in gasoline prices close in properties will be in even higher demand. Then there is the weather that is difficult to beat. Any further limitation on mortgage interest deductions could significantly negatively impact the real estate values. 

The market experienced some strong price increases that are typical for February-April. SCC's median Sold price increased from $664,000 in January to $750,000 by April. $760,000 in August. Prices are likely to continue to remain strong but flat until the DUI increases significantly. October's median came in at $741,000 and we currently believe that November's median Sold price will come in basically unchanged at about $740K. The increase in median Sold price this week to $752,000 is the mild increase we were expecting as some of the anticipated 2006 appreciation is pulled forward into 2005. However, we suspect that with the continued sluggishness of the market that this recent bump is likely to disappear in the next couple of weeks. If DUI increases, future price increases become less significant and less likely.

Using a 5-year average (graph) as a norm, allows us to better understand the behavior of the real estate market while viewing just one graph. Inventory had been following normal patterns, but started to increase in July and August inventory increased from 68% to 78% of the 5-year norm. During September inventory increased to 86% of normal. October saw inventory increase to 103% of normal. This weeks increase is to 109%.

There have been five significant drops in initiated sales volume using the 5-year norm:
    1) the month of June 2004, 153% to 131%;
    2) mid-November through mid-December 2004, 130% to 110%;
    3) the second half of January 2005, 119% to 92%; and
    4) July 2005, 125% to 117%.
    5) starting on October 5, 2005 and ...continuing

The fluctuations in DUI compared to the 5-year average have been replaced with an increasing DUI. This indicates a slowing market. DUI reached 68% of normal on September 21, 2005 and has since decreased to 63% of normal on October 4, 2005 before increasing to 73% of normal on October 20, 2005. DUI has now increased to 98%. DUI of less than 100% means a stronger/hotter than normal market conditions. Significant price decreases should not happen until DUI is approaching 90 and a DUI of greater than 100%. We think this is unlikely to happen any time soon although it seems SCC is on a track for this to happen at some point in the future. We expected a 2-4% price correction going into late Summer or early Fall. We did experience a 3.5% dip in the September data. We expect November and December to be essentially unchanged. This means +/- $10K.

Viewing the raw sales volume data is eye opening. Notice that the deep blue line shows the significant drops in number of transactions. It is the vertical separation between the two lines that shows the "extra" transactions in 2004 when compared to the 10-year average. Notice that volume of initiated sales dipped below the 10-year average reaching a low of only 98% in January 2005. This appears to have been caused by a 1-week delay in the low point in the volume of sales. This corresponds to a horizontal shift of 10-year average graph 1-week to the right. We have the sales volume data going back to July 1992 and this is the first time we have noticed a time shift. Sales volume is currently above the 10-year average at 105%. 

2004 experienced the greatest percentage reduction in sales volume based on a percentage of the summer's peak volume. The end of 2004 experienced sales of only 44% of that summer's peak. Other years were 2003=55%, 2002=54%, 2001=95% (fueled by the post 9/11 feeding frenzy), 2000=47%, 1999=48%, 1998=62%, 1997=63%,1996=47%, 1995=61%, 1994=48%. Clearly something to monitor even though sales volume is currently at 105% of the 10-year average. It is still way to early to start calculating the 2005 dip.

Sales increased more rapidly than normal climbing from 98% of normal in January to 128% just prior to Memorial Day. Sales then declined at a faster than normal rate reaching 111% of the 10-year average on July 21, 2005. Sales have been increasing in August reaching 120% of the 10-year norm before dropping again to 105%. These percentages are not adjusted for growth. Like the increasing inventory, the fluctuation in the sales volume remains a concern. We believe that some of the robust sales in 2004 might be partially explained by issues with the MLS software.

Comparing 2005 to 2000 seemed logical as the real estate market conditions had been similar and the calendars were identical. 2004 was similar to 1999, then it is apparent that something very different started after the 2004 Presidential election. It turns out that 2005 started to repeat 1999. Check out the how all three components (inventory, sales & DUI) were all close to 100%. But then notice the increased inventory. It was the increase in inventory that was causing the increase in DUI. 2005 appreciation of median Sold price for completed sales has reached 21.1% (760/635) with indications that this is it. With a current DUI of 56.4 2005 has become cooler than 1999 with 24.3 DUI, 2000 that had 27.2 DUI, 2003 with 45.6 DUI and 2004 with 26.7 DUI. This drops 2005 to the fifth strongest year since we started gathering data in 1998. 2005 is beating 1998 at 67 DUI, 2001 at 88.4 DUI and 2002 at 99. Clearly, 2005 is closer to 1998. However, in 1998 inventory was dropping rapidly compared with today's inventory that although dropping, is dropping less than is normal. This is comparing the same dates. 

Because people remember last year the most clearly, here is a comparison between 2005 to 2004. The lack of inventory that many have complained about has climbed steadily from 55% at the beginning of the year to 191% now. Sales were at about the same level until the second half of January when 2005 sales started to drop off significantly reaching 82% compared with 2004. The rate of decline in sales has slowed and even recovered some. Sales volume had been performing similarly to 2004 but with 2005 at 90% or having 10% fewer transactions. That was until September 16, 2005 when sales bottomed out at 87.8%. By October 6, 2005 sales have increased to 94% of 2004. During the past 45 days sales has dropped to only 85%. DUI started 2005 at 52% reaching 86% by Valentines day, 95% by tax day and 131% on September 26, 2005 before decreasing to 126% on the 29th. Then DUI shooting up to 190% during October and is now reaching 224%. This means the market is now less robust than in 2004. It is noteworthy that in mid-August DUI was only 108%. This is a 116 percentage point increase in just 3 months. This increase was initially a result of the increasing of inventory but now the decreasing sales is causing DUI to continue upward. Our concern here is that DUI is the leading indicator. There is a very good chance that the magnitude of this increase will cause an additional dip in price in the last part of 2005. This means the current increase in median Sold price could be very short lived with a flat November and a decrease in December.

If asked to provide guidance, we would suggest that the April through August was the price plateau and we now expect this to be followed by small 3.5% reduction in price for September before a bounce up in October to  $741,000 followed by flat to slightly down price in November $735,000 and a more significant drop in December to about $725K. We currently believe that the appreciation for 2006 with start out strong like 2005, including bring some of the 2006 appreciation into 2005, which could cause the December median Sold price to be basically unchanged at $740K. The increase in DUI may be too significant for the price increase to sustain very far into 2006. In fact, 2006 could be like 2001 where January was the peak month. Although we remain concerned about the increasing inventory and the fluctuation in although strong sales volume, DUI is more important than the drop in sales volume or increase in inventory when determining price appreciation. So the DUI will have to start approaching 90 before we expect any significant drop in values. We also don't have a good explanation for the increase in inventory since mid-July and more rapid increase since Katrina. Keep in mind any interest rates increase have significant impact on affordability. IF DUI continues to increase we don't see how 2006 can sustain long-term price appreciation.

Real estate remains a great long-term investment. With the current behavior in the SCC real estate market statistics, we would recommend rational behavior, making plans for long-term and not the short term gains. If a seller needs to sell during the next 2-months waiting until mid-January might be the thing to do. All Sellers should be ready to go on the market, as the market can and has changed very rapidly. There is a good chance that like in 2001 January could be the peak price for the year. 

On the other hand, Buyers should move forward because of fears that interest rates will increase but being careful not to overpay too much or settle too much as the bulk of the price increase for 2005 has already occurred. This means buyers need to exercise some caution in the bidding frenzies that are so common. Buyers need to be willing to compete, but not go crazy. Ideally buyers can purchase soon with our biggest concern being increasing interest rates, which increase the cost of homeownership not increasing prices. A Buyer should definitely purchase before New Years 2006 as we again expect to see some significant price gains early in 2006, even if it is less than the 15% experienced in 2005 and is only 5% that is still significant. Both buyers and sellers should watch the market conditions for additional indications that the market for signs of strength or weakness and act accordingly. If the market shows signs of weaken or strengthening moving forward rapidly will be key. For now, the change appears to be gradual so no need to race forward. Now is a great time for trade up buyers because with the slower market on the approaching holidays some sellers might consider a contingent offer and there is still a lot of inventory to select from. 

This weekly analysis is based on the overall real estate market conditions of single family homes in Santa Clara County. If you are considering selling or buying, it is important to evaluate specific real estate market data for your individual transaction based on price range, geographic area, and type of real estate you are purchasing or selling. Just contact us for this customized information. 

Inventory – 2228; 2005 has more inventory than in 1999 at 237%, 2000 at 229% and 2004 at 191%; the same as 2003 (106%) and significantly less than 2001 & 2002 inventory at 71%. The gradual elimination of surplus inventory during 2004 caused a shortage of inventory in 2005 contributing to our belief that 2005 would likely be similar to or stronger than 1999. With the recent increase in inventory 2006 likely will be less robust than 2005. From mid-May until July 4th inventory was actually decreasing. Since July 4th inventory has been again growing at a time when it is normally decreasing slightly. This increase in inventory became more significant since Katrina. Inventory appears to have finally leveled off and actually decreased since mid-October. The general perception of limited inventory earlier this year contributed to the price firming. As inventory continues to grow, it will contribute to price stabilization. Based on the continual increase of inventory in August and September, we reduced our 2006 appreciation guess from 15% to 10% and now to 5%.

Days of Unsold Inventory – 56.4 We believe that the DUI continues its increasing trend despite dips we attribute to the holidays. The balance between supply and demand is the most important factor in a free economy. We measure this balance using Days of Unsold the Inventory (DUI). Most areas in the nation use "months of unsold inventory." Since February 26, 2005 when DUI was only 26.4, DUI has been increasing slowly, except for holiday bounces. DUI has been increasing more rapidly in July, but still nothing to be concerned about, especially because it has been flat for most of August. DUI has been increasing again in October. It will now depends on how much longer "extra" sellers come onto the market. But now that the number of buyers appears on the decline we are becoming concerned about the 10% appreciation for 2006. Based on the increase in DUI caused by increasing inventory and now decreasing buyers we think 2006 appreciation will be closer to 5% opposed to our earlier estimates of 15% then 10%.

Many areas such as Santa Teresa, North Valley, Milpitas, Santa Clara, South San Jose, Blossom Valley, Cambrian, Campbell, Cupertino, Sunnyvale, Mt. View and Palo Alto are leading the way in Santa Clara County with 23 to 54 DUI. The DUI for these fast areas is 37. This put much of Santa Clara County still in a seller's market. Other areas such as South County, Los Altos and Saratoga & Los Gatos which are almost always the slowest two areas, are lagging behind with 86 to 137 DUI with buyer's market conditions. The areas not mentioned are in a balanced market with a DUI ranging from 68 to 75.

It is also important to note that the different price ranges have significantly different DUI and therefore different market conditions. These price ranges should be considered the low, middle and high price ranges in any given real estate market area opposed to the set price ranges. So, in the more expensive areas the prices that represent low, middle and high are higher. The low priced homes (those under $750,000) only have 39.5 DUI. Homes between $750,000 and $1,000,000 have 55.5 DUI. The high-end had started to improve and entered a balanced market before slowing again. Currently, homes between $1.0 Million and $2.5 M have 84 DUI (that's nearly 3 months); homes between $2.5M and 5.0 M have just under 1-year at 11 months of unsold inventory and homes over $5 Million have 3 1/3 years. We consider 45 to 90 DUI as a balanced market.

Median List Price - $727,000 Median List price is now $15,000 below the record high of $742,000 set on July 28, 2005. It seems that the consumers anticipated the price increase that we were expecting to happen early in 2005. This caused the prices to increase during the end of 2004 and for List price to be stable at the beginning of 2005 before resuming the climb in February. List price reached $710,000 on March 3, 2005 and stayed there through May 5th. List price again jumped $14,000 on both May 12th and again on 19th and has been essentially flat since May 19, 2005. Not the smooth increase most people expect. Notice that currently the median List price is fluctuating which makes it difficult to determine the direction of future Sold prices. This is an indication that the median Sold price will likely be essentially flat.

Number of initiated Sales per day – 39.5 Something happened around July 11th that caused the buyers to leave the market at a faster than normal pace. This exactly matches with the release of LM1.8.2 (Listing Management software used by REIL to report sales.) Our concern is REIL has a track record of causing a new mistake when fixing an old mistake. At this time we are uncomfortable guessing if there is a bug in the new software or a change in the market. Inventory is growing slightly more than normal, which is hard to attribute to a MLS issue. The all time record high level of 66.7 sales/day was reached just prior to Memorial Day 2004 and will likely remain the record for years to come. 2005's record of 57.9 sales/day was also achieved just prior to the Memorial Day weekend. The previous record was 54.8 sales per day also reached just prior to Memorial Day but back in 1999. We believe that part of the record volume in 2004 and 2005 is a direct result of issues with the MLS database that continue two years after the disastrous migration in July 2003.

Percentage of normal sales initiated – 102.7%. Sales have not been this low since early 2004 except for brief transient periods. A third drop in percentage of normal sales from 114% to 96% occurred during the second half of January 2005. Percentage of normal sales had been climbing more or less since February 1, 2005. But saw flattening out immediately following the release of Listing Management 1.8 on May 10th. This is the portion of the software used to report sales. We believe that there is a direct connection between these two events. So even though sales were dropping more rapidly than normal based on the MLS data, we believe that this is simply eliminating the fictitious sales that were never there. In any case, sales have increased slightly in August. This coincides with the all the data going through the MLS's new LM1.8.2. 

Median Sold price – $751,944. The record high of $759,000 was set on May 19, 2005. May's median sold price was $749,000. June's median came in at $760,000. July's is $750,000. August is $760,000.September dipped to $733,000 which is the same as March's median Sold price. October's median Sold price came in at $741,000. We are now estimating November's median Sold price to be $740K. The dip will likely be just for September 2005, as we had expect by November or December to be flat as the downward trend is offset by some of 2006's appreciation being pulled forward. 2005 was the hottest June since 1998 successfully stabilized prices. We don't expect any significant upward movement in price. The market has cooled and 2005 is now being beaten by 4 other years (1999, 2000, 2003 & 2004) the Fall dip in prices is likely to become more significant and prolonged. But likely followed by an increase very early in 2006.

Prices increased for 8 straight months $630,000 in September, $636,000, $649,000, $661,000, $664,000, $705,000, $733,000, $750,000. This longest duration of monthly price increases got broken with May's value of $749,000. June's median did increase to  $760,000 but only after May broke the trend. July clearly broke the pattern with a drop from $760,000 to $750,000. August came in at $760,000. We believe that the limited inventory and strong market pulled some of 2005's appreciation forward into late 2004. Mother's Day was the true market peak for 2004. Despite the weakness in the market back in January we believe that the peak for 2005 market occurred at about the same time, Mother's Day 2005. After a robust May and June; July through November have been showing some weakness. 

Average Sold price to List price ratio – 100.8% This means on average Sellers are getting more than they are asking at the time the offer is accepted. This had been relatively flat from August 20. 2004 until February 2005. Increases had pushed the ratio above the recent record of 102.0% set on May 7, 2004, peaking at 104.4% on April 21, 2005. SCC hasn't experienced this level since back in 2000, when it reached 109%. The magnitude of overbidding has been decreasing essentially weekly from April 21, 2005 until August 18, 2005. This is an indication that buyers are not feeling as much pressure and/or that sellers are expecting more and have raised their asking prices. We consider 98.5% a normal real estate market. This is based on the asking price at the time the offer is accepted NOT the Seller's original asking price and reflects market conditions 25 to 95 days ago because of the length of escrow and how this data is collected. This is one of the few times where an average is more useful than the median. The median ratio would almost always be 100%. 

Percentage of completed Sales where Sold price was greater than List price – 55.8% The all time record high of 75.2% was set May 12, 2005 beating the 74.8% level reached in April 2000. Starting in February 2005 through May 12, 2005 the frequency of overbidding had been increasing. Between May 19, 2005 and July 21, 2005 the frequency of overbidding has been declining again. Between July 21, 2005 and Veteran's Day the frequency of overbidding has been flat with almost 3 out of every 5 sellers are getting more than their asking price, at the time the offers accepted. This has dropped the last 2-weeks to 55%. It is no surprise that the dips in overbidding follow the dips in volume of sales because overbidding is a measure of the amount of unsatisfied buyer demand.

Median DOM for completed sales – 19 days. DOM was 11 as recent as mid-May. Then increased to 17 before returning to 16 then back to 17, 19 then 20 and now back to 19. DOM for offers accepted has increased to 21, so expect DOM for completed sales to increase. Currently DOM is not very meaningful because the MLS is allowing DOM to revert to zero.

How are the other Counties doing? Based on the moving monthly data published weekly, SMC median List price dipped to $810,000 and is down $49,000 from their record high of $859,000 set on May 12, 2005. SMC median Sold price is $850,000 off $75,000 from their new record of $925,000 set on May 5, 2005. At $727,000, SCC median List price is now ONLY $15,000 below their record high price $742,000 achieved on July 28, 2005. The median Sold price at $751,944 off $8,000 from the record high of $760,000 established on June 30, 2005. SZC's median List price at $769,000 is off $20,000 from for their record high of $789,500 set on July 14, 2005. SZC's median Sold price of $782,000 is $9,500 off their new record of  $791,500 set on June 30, 2005. MTY median List price at $705,000 is actually a NEW record high by $6,000 set on November 24, 2005. Monterey's median Sold price of $688,500 is off $20,000 their record high of $708,900 on July 28, 2005.

Additional background information