Talking Charts — Local Market Analysis
This post first appeared in the February edition of: Cirios Trends: In Search of Real Estate Opportunities.
It’s been our long-held view that the housing recovery would be a prolonged, localized event. That is, even while pundits are out there hailing that the bottom is in, or that it’s a great time to buy, we are more cautious. It certainly is a great time to buy … certain properties at certain prices in certain locations with a certain strategy. To say much more borders on recklessness, since current market strength is so heavily reliant on government intervention to support prices. And, if a picture is in fact worth a thousand words, this graphical depictions of a few representative Bay Area real estate markets are certainly worth a look.
Judging by the activity shown above, there are a whole lot of under water borrowers in Morgan Hill, a southern suburb of San Jose that saw a huge pop in luxury homebuilding during the dotcom then housing booms. Even buyers as late as Mid-2007 are in rough shape, but prices are trying to stabilize here at levels not seen since the early part of the decade. We would urge caution however, as based on current foreclosure data there is a decent amount of looming shadow inventory in the Morgan Hill market. This, along with pricing pressure in desirable parts of San Jose like the Almaden Valley, could make calling a bottom in Morgan Hill home prices a bold call indeed.
———————————————————————————————————————-
Menlo Park, CA has seen an immense boom in wealth in the past two decades. But what stands out to us isn’t the bulge in home prices during the dotcom mania of 2000-2001. It isn’t even what looks like a precipitous drop in values in the latter half of 2008. Instead, any market where in a given year you see more than a $1000 / sqft spread in sales prices warrants a deeper look. And indeed, if you flip to the next page, you will find that deeper look.
———————————————————————————————————————-
Zip code data is great, but it rarely tells the whole story. Dig into individual neighborhoods and you often find a very different story. Menlo Park is a case in point. On the east side of 101 lies a Menlo Park few residents have ever visited, except on the way to the Dumbarton Bridge: Belle Haven (and even then most probably think they’re in East Palo Alto). Vastly different demographics yield property values that belie the trend in West Menlo. In Belle Haven, starting in early 2007 prices truly fell off the proverbial cliff even as the rest of Menlo Park hung tough. The difficult question is now what part of town is now the safer bet? Would you pick the established, wealthy neighborhoods where prices have just dipped back to 2004 levels, right in the middle of the boom, or the rougher area in the midst of gentrification long over-due, where prices are now back to pre-dotcom levels?
———————————————————————————————————————-
Next door to Menlo Park lies sleepy Atherton, CA, a town constantly ranked in the top 5 wealthiest communities in the country. With a single sale below the $500 / sqft mark since 2004, Atherton is truly a luxury market. It’s also a case study in understanding your market. Even at the peak of the recent housing boom, prices didn’t reach the astronomical heights of the dotcom boom, when every overnight millionaire in Silicon Valley rushed to buy in Atherton (if their stock options had to time vest, of course). More recently, it took the stock market’s crash (see red line) to dent this exclusive community’s housing market. So, with history as a guide, in Atherton it appears that stock prices lead home prices. As the stock market struggles to hold its recent gains, let’s see which way the wealth effect cuts in the coming months.
———————————————————————————————————————-
Let’s end this month’s newsletter with what could be a feel good story in the making. San Leandro, CA has the misfortune of being located immediately south of Oakland, a city rife with violent crime. San Leandro may not win any awards for its French Cafes or
Ballet troupes, but there is precious little affordable housing left in the Bay Area. Many San Leandro neighborhoods are quiet, safe and convenient to job centers around the Bay. Inventory is being severely limited by government-led efforts to forestall foreclosures, and buyers armed with government loans are chomping at the bit to get in. It remains to be seen if the recent trough in prices can hold, but the fundamentals exist for a sustainable recovery.
Tags: 94025 real estate, 94027 real estate, 94577 real estate, 95037 real estate, atherton real estate, bay area home prices, bay area real estate analysis, bellehaven real estate, menlo park real estate, morgan hill real estate, price per square foot atherton, price per square foot menlo park, price per square foot morgan hill, price per square foot san leandro, san leandro real estate