In the last couple of weeks, I have heard more and more real estate agents and loan officers tell me that they believe we might be near the bottom of the housing market in San Jose. Their biggest support for this theory is kind of interesting. It goes like this: " How much lower can home prices possibly go?" Hmm. Well there you are. Scientific, (not), analytical (not), a hypothetical guess (barely), coming right from the professionals.
I decided to look at the stats to see if I could see any indication that we are near the bottom of the housing market in San Jose. I looked at the average sales price for each neighborhood for single family homes, condominiums, and town homes from February 2008 to February 2009. Out of the 15 neighborhoods, 7 were continuing to trend down on average sales price. Saratoga had a huge down in January and then a huge up in February so I will call that a wash. Four areas, Milpitas, Central San Jose, Cambrian, and Willow Glen showed an average sales price slightly higher in February 2009. Certainly hard to call one month's results a trend in this market. Especially, when over the last year we have seen some bump ups in almost all the neighborhoods at one time or another.
The most interesting graph came from the Alum Rock neighborhood. Alum Rock has been hit hard as a result of sub-prime lending. Alum Rock was one of the last areas to "boom" in San Jose. It was also one of the first to show signs of trouble. Over and over again, I see the "entry" level markets hit hardest by the sub-prime debacle. There were not a lot of sub prime loans made in Atherton. You see the results of sub-prime lending where minorities, blue collar workers, double and triple job Mom and Dads, with extended families wanted a part of the American Dream. But I digress.
Alum Rock has been fairly in regards to average sales price for the last 4 months. Number of listings on the market coming down and new listings are down as well. With 4 months of steady numbers, you might very well be able to call this a trend.
Once again, Alum Rock calls out to anyone looking for an opportunity. If you are a first time buyer, Alum Rock offers single family detached home with a yard for under $300,000. The Alum Rock neighborhood makes up about 17% of total active homes for sale in San Jose. Alum Rock has 570 current listings with about half of those listings as short sales and about a third REOs (foreclosed, bank-owned, corporate-owned). Another interesting stat that simply screams "affordability" is the break down in pricing of the active listings. See the graph below.
Nearly 300 homes under the sales price of $300,000. That hasn't been seen in San Jose since the year 2000. Wow. Nine years of appreciation gone. Which now, you can go back to the original view point of some of my colleagues and ask, "How much lower can home prices possibly go?" It is a question to ponder.
With nearly 50% of the listings short sales, you have to wonder how many of those loans will be modified in the next couple of months. If loan modification works, we could see a continued reduction in inventory and therefore the potential for more stabilized pricing. On the other hand, if loan modifications do not work and/or the lifting of the moratorium on foreclosures (due to expire April 1st for the big banks) sends a flood of REOs to the market, we could potentially see another drop in average sales price. How much? The Alum Rock neighborhood of San Jose has lost 50% of value since the peak of the market in 2007. Can it lose 60%? 70%? 80%? At some point you have to ask how much is the land worth?
Has Alum Rock reached the bottom of the housing market? Does seeing a upshot in average sales price for Willow, Cambrian, Cental San Jose, and Milpitas indicate other neighborhoods may be approaching the bottom? Will interest rates increase and trump any 5-10% drop in sales price over the next quarter? Will Richard Branson be the first person to truly master space travel for the average citizen? Who knows. But I believe if you are a fence sitter, it is time to get uncomfortable enough to jump down and start looking. The pundits are correct about one thing; hind sight is 20/20.
