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

San Jose is a vast city, encompassing many varied neighborhoods. This month, the zip code spotlight falls on two zip codes within the city of San Jose: 95124 (Cambrian Park) and 95127 (Alum Rock). While these zip codes vary somewhat in price (average current listing in 95124 is $655,000 and 95127 is $528,000), they have experienced markedly different market behavior in the past few years.

Looking at the market activity graphs below, one dramatic aspect immediately jumps out at you. 95127, the less expensive of the two, experienced a huge spike in supply (the biggest we’ve ever seen) during the economic crisis of 2008. Home sales in the area came to a virtual standstill and average prices fell almost 60% in around a year.

By contrast, 95124, the “nicer” of the two neighborhoods experienced “mild” price declines, falling only 30%. While this decline likely felt anything but mild to those living in the area, it’s decline was middle of the road by California standards.

So what made the difference? The answer lies in the nature of the now-burst housing bubble and provides an interesting insight into the future of the real estate market.

As you can see in the graphs, 95127 experienced a huge run UP in prices as the real estate market peaked in 2007. In contrast, 95124 saw prices flatten out in 2007, showing the market was more reflective of economic reality – namely that the gig in housing was up. 95127 saw far more new homes constructed during the boom than did 95124, and as such, homebuilders lubricating the local market with generous incentives lured in many aspirational buyers who felt that negative news surrounding the housing market would soon blow over. This liquidity of buyers enabled owners who bought early to cash in, and when the music stopped and the bubble pricked, those new buyers in 95127 were left without a chair.

Meanwhile back in 95124, frenetic buying was a bit more muted. An established neighborhood with good schools and a strong community, prices had been rising not just due to boom-time forces pushing up prices (easy lending, a mania of skyrocketing prices area-wide, etc), but also due to more traditional, fundamental factors.

The moral of this story is to not just look at charts and graphs, but to examine the fundamentals behind home price movements. We at Cirios spend a lot of time carefully monitoring market trends and are intensely interested in the factors underlying value. Why do people want to live in this area? Will they still want to live here in 5 years, 10 years, 20 years? Asking questions about the fundamentals of real estate value can help make sure that you too don’t get pricked by the next bubble.

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

As the infamous “Summer Buying Season” looms a few months out, it remains to be seen whether or not recent market strength can continue. In a way, the housing market has been turned on its head in the past year: The weakest markets are now the strongest, while some of the most well-to-do areas remain shaky and illiquid. The bifurcation in today’s housing market is persistent, and we believe will continue to be the dominant trend in 2010. Taking a look around the Bay Area, data support this theory, as can be seen the charts on the following pages.

Alameda is truly an island unto itself. It is after all, an island. And in some ways a whole different world. The western half of the island is dominated by the quasi-vacant Alameda Naval Complex, which is part maritime ghost-town, part industrial development opportunity in the making: Years of potential development deals have hung over the area, which remains one of the choicest pieces of undeveloped land in the Bay Area. Meanwhile, strong schools, a bustling downtown and a unique sense of community draw middle class families from around the Bay to call Alameda home. As the chart above illustrates, Alameda has seen its share of price declines, but this decidedly middle class town has experienced decidedly middle of the road housing troubles. With prices off “just” 24% from the peak and stabilizing of late, homeowners couldn’t have asked for a much better outcome from the worst housing slump since the Great Depression.

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We at Cirios have shown chart upon chart, graph upon graph, data upon data to illustrate that low end housing markets have been the first to recover, while high end markets have remained troubled. At first, we were called loony, since conventional wisdom knows that when housing starts to recover, it’s the strong markets that bounce back first. Not so this time. It has now been well documented that luxury real estate is still under pressure even as distressed markets start to stabilize. In case you weren’t convinced, we offer you yet another fascinating example of why buying in the high end can still be a risky proposition if not done smartly. The graph above shows condo prices in Burlingame, one of the most desirable locales on the Peninsula. There aren’t a ton of condos in the town in the first place, as evidenced by the spotty dots, but the trend is clear: Prices have come down, but not by much, and if the cluster of dots below the trend line in 2009 are any indication, stability isn’t likely in the cards in the immediate future. Flip the page to see the polar opposite situation across the Bay in Concord.

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Wow, now that is a chart. (Commodity-watchers of recent years will recognize this pattern, to be sure). The price correction above was nothing short of spectacular. Unless, of course, you owned a condo in Concord. In addition to all the other factors pushing down prices, as condo buildings got into financial trouble, they were crossed off the FHA and Fannie Mae Approved list, effectively locking buyers out of financial options. When your only buyer is an all-cash investor, prices really crater. Dig into the data above at the complex-by-complex level and you can literally identify the point at which the complex got removed from the Approved list. But as rental yields once again started to make sense, investors returned to the market. With prices having tumbled all the way back to 2000 levels, even though Concord doesn’t have the caché of Burlingame (nor the schools, of course), where would you rather put your money?

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Just like the statement “the housing market has bottomed” is meaningless to anyone but the most macro-focused economists, trying to look at even city-wide home price trends is often a fruitless endeavor. And while sometimes even zip codes hide the true trends (as we saw last month with Menlo Park, CA), zip codes are the only way to even begin to examine home price trends effectively, especially within large cities. For example, the question “How far off the peak are home prices in San Jose?” is impossible to answer. The chart above shows the zip of 95127, which lies to the east of Highway 680. From the peak, prices are down more than 50%, all the way back to levels not seen since 1999. Note also that there was nary a pop during the dotcom bubble, which means this area isn’t chalk full of technology execs, to say the least. Flip to the next page for a very different perspective from a very different part of town.

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The zip code of 95120 is home to the Almaden Valley, one of the most desirable parts of San Jose, and, by extension, Silicon Valley. All one needs to do to is look at the spike in expensive homes sold in this area during the peak of the dotcom craze to get a sense of the area’s demographics. Prices in 95120 are off a mere 20% from the peak, which occurred a full year after that of our previous area of 95127. Interestingly, Almaden has seen a touch of stabilization since the beginning of last year, and even a small rise in prices. But, with prices only back to 2004 levels, during the height of the housing boom, we would caution that it’s more than likely that 2010 could bring some pricing pressure, as a weak job market begin to stress Silicon Valley’s more well-to-do residents.