2011 Market Year End Letter

With 2011 coming to an end, I want to wish you a healthy and prosperous 2012.

The real estate market has stabilized. We are getting more of the distressed properties sold and out of the bank system. The number of short sales and REOs (Bank Owned properties) were about the same as last year. As it was predicted, about the Shadow (foreclosed or ready for foreclosure homes) inventory that the banks are holding and that they would flood the market, it never happened. Here is the inventory numbers:
Active inventory, Single Family and Condo/T-houses for sale
October 2010 active inventory 4590 homes for sale
October 2011 active inventory 3076 homes for sale, a 33% reduction in inventory
Santa Clara County is growing faster than the rest of the state and the country. As I mentioned last year, some short sales and foreclosures have appeared in the premium areas like Los Altos, Palo Alto, Saratoga, Cupertino, Los Gatos and Almaden Valley. These homes are primarily over 1M. Their numbers were extremely low and they are few and far between.
The construction activity has picked up a little; builders are able to buy land at a cost that makes sense to build, primarily in the low to midrange homes. Employment has improved a little in the Silicon Valley (we are very lucky to be here). We are at 9.5% vs. the State unemployment which is over 12%.
Here are the median single family home prices since March 2009, which was the bottom:
March 2009 $450,000
October 2009 $593,000
October 2010 $641,500
October 2011 $549,000
The Median Price is the middle point of all the homes that sold in the month. Since the number of sold homes under $500K increased and the number of the sales over $500K was fewer, the Median Price becomes lower. We actually have seen the prices move up at least 5% in last 12 months, some areas even higher.
The rental market has improved tremendously. The vacancy rates have dropped to less than 5% and the rental rates have increased 8% to 15% depending on the location and condition of the units. The reduction in the rental inventory and higher rental rates is due to the following factors:
1. Owners losing their homes due to foreclosure and short sales can only rent.
2. Tough lender qualification requirements, causing fewer buyers and more renters.
3. Many have lost their equity in real estate and stock market = no cash down for purchase.
4. Many have damaged their credit and will not qualify to purchase.
5. Many have lost their job and are not able to get a loan.
The rental market is staring to produce much better cash flow and investors are actively purchasing more rental real estate.
The interest rates broke its historical lows of 2004-2005. The rates on average are about .5% to .75% below the last year rates. Here is a sample of rates as of first week of November 2011 with zero points:
Loans under $417K=3.87% (conforming loans)
Loans between $417K to $625K=4% (this is the new Jumbo conforming)
Loans above $625K=4.5% (this is Jumbo loans). $729K (old jumbo loan limit) is no longer available

Good news 1: 33% lower inventory than last year.
Good news 2: the interest rates are even lower than last year making it more affordable.
Good news 3: it is a great time to take advantage of lower priced homes, lower interest rates and flexible sellers who have to sell. Our top buyers in the market are: first time home buyers, investors and move up buyers.
Statewide, the inventory is lower across the board in all counties. As per California Association of Realtors, many homes are selling with multiple offers. There are a lot of cash buyers taking advantage of the bargain priced homes.
My analysis: the employment in Silicon Valley is improving at a much better rate than any other area. Again, high tech is the engine that is powering our employment growth. There is a lot of expansion going on with some of our high tech companies like Google, Facebook, Cisco, Linkedin and many others. We are seeing more hiring and relocations to our area this year than in the previous years.
This year was a much better year than last year and I expect it to continue to get even better next year. We should have a higher number of sales, appreciation rate of at least 5%, and continued low interest rates.
2011 has come and will be done. I enjoyed the constant contact with you. It is always a pleasure talking with you when you call, whether it is business or just to say hello. And as always, I appreciated your business and friendship. I am never too busy to answer any questions you might have regarding any real estate matters, and in the case I don’t know the answer, I will find it for you. I can also help you with any referrals for people in the home improvement profession to assist you with your home improvement projects or repairs at reasonable prices.
I think this is another great opportunity to buy if your situation allows. You do not want to feel bad later that you missed such a good market for purchasing real estate.

Wishing you and your family a prosperous 2012!

Jin Chen, REALTOR®
Work: 408-996-8100 x 316 Cell: 650-207-1421 Email: realtorjin@yahoo.com


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