This post first appeared in the May edition of: Cirios Trends: In Search of Real Estate Opportunities.

This month’s zip code spotlight falls on a decidedly high end area of the San Francisco Peninsula – Los Gatos. Lot Gatos is a suburb to the southwest of San Jose, known for large, secluded lots at the very high end of the pricing scale.

Looking at the sales activity graph below, the first thing that jumps out is the high price: Running average prices peaked at over $1.5 million in 2005. In fact, for clarity, this graph cuts off sales above the $2 million level even though homes still regularly sell above this level.

The next item worth mentioning is the 30% drop in prices this area experienced in the space of only around six months. As we have so often seen, this cliff drive in prices corresponded with a spike in available supply. Interestingly, the price dive appears to have preceded the supply spike, as it usually happens the other way around. Also, a 30% drop in prices in this short of a time span is pretty unusual for this type of luxury market. This evidences, among other things, the extent to which aspirational buyers were reaching for a Los Gatos address, only to have reality quickly set in when the bubble burst.

Another item worth noting on this graph is that supply remains elevated above traditional levels for this area, and that prices have essentially held steady since the precipitous drop in 2008. Does this mean this high end market is consolidating for another leg down? Only time will tell, but the folks here at Cirios Real Estate are watching luxury markets like these with baited breath to see which way they go.