In December, it was beginning to look a lot like the early 2000's in Silicon Valley as home sales slipped dramatically, months of home price appreciation vanished and buyers forced sellers to reduce their prices.
The weather, holidays and other year-end seasonal factors were less to blame this year than the toll taken by rising interest rates and the sticker-shock of expensive housing.
"Most people think the housing market is a pillar of the economy, but based on the numbers in December, it's not as strong a pillar to support the economy as it once was. There are some noteworthy conditions," said Richard Calhoun, broker-owner of Creekside Realty in San Jose CA.
Initiated sales or accepted offers on single-family, detached homes slipped to 736 in December, the lowest they've been since the number plunged to 620 in December of 2000, according to Calhoun's Bay Area Real Estate Market Newsletter, a report comprised of statistics from the area's official multiple listing service, RE InfoLink of Campbell, CA.
"This was a particularly bad December and we all know what happened after December 2000, 2001 was a very bad year. The next lowest number was 772 in December of 2002 and that wasn't a good time either. Since 1999, this December's sales was the second worst year for sales. And today's sales become next month's closings," said Calhoun.
Closed sales were down to 970 in December, slipping well below levels in December 2004 (1185) and 2003 (1223). Since 1999 the low point was 888 in December 2001, Calhoun reported.
The median price of single-family homes in closed sales slipped back to $734,975 only about $2,000 more than the median in September and well off the record peak price of about $760,000 set earlier this year.
"The price drop is not that significant, basically it's the same price as it was in September and March. What's noteworthy is that the appreciation we've had since March has disappeared," said Calhoun.
"I don't think buyers are feeling upward price pressure, but they are feeling upward pressure in interest rates," he added.
However, a growing number of buyers who purchased homes at peak price periods in 2005 may now be living in homes worth tens of thousands of dollars less than their mortgage. That's more likely if they used heavy leverage financing tools like no-money down and piggyback loans or interest-only and payment-option mortgages -- as an increasing number of buyers do in Silicon Valley's expensive market.
It's not just Silicon Valley's housing market feeling the pressure. Santa Clara County's neighbor to the north, San Mateo County, has a housing market that lopped more than $100,000 off its median single-family home price since it's peak in early 2005.
San Mateo County's December $820,000 median price represents year-to year appreciation at a piddling 3 percent -- far off the 15 to 20 percent rates of appreciation experienced during most of 2005.
What a difference a year makes.
Calhoun reported that for the first time since February of 2004 home sellers in December 2005 didn't get more than their asking prices as buyers pressured them down to an average 99.9 percent sale price -- again a statistic representative of conditions that existed in the early 2000s.
"I'm still seeing a lot of activity, but buyers are being more cautious and are bringing more of a haggler's mind set to market," said Edwin Resuello, 2006 president of the Santa Clara County Association of Realtors and broker owner of Realty-World-Silicon Valley Homes in San Jose.
Meanwhile, condo prices in December held their own as the more "affordable" housing sector remained more stable -- for now.
Initiated sales or accepted offers were down to 302, the lowest level since 217 in December 2000 and closed sales dropped to 423, the lowest they've been since 407 in December 2003.
The median priced on condos in closed sales, however, remained firm rising $17,000 from $475,000 in November to $492,000 in December and up from $429,000 a year ago.
Condo sellers, on average, received 100.5 percent of their asking price in December, down from 101.5 percent a month earlier and 102.2 percent a year ago.
Some of the "strength" in condo prices, however, could be an inventory shift to newer properties. Silicon Valley is in the midst of a condo building boom, many of them high-rises. That means there's a greater supply of resale condos a few years old which draw higher prices than older condos.
"That tends to raise prices. The condo market tends to be more price stable so there is less fluctuation than in the single-family market. Condos are going strong and part of that is because they are making up and bigger and bigger portion of the marketplace. It's what's affordable and what's being built," said Calhoun.
