"Zillow: Home values in November back to 2003 levels."
Regular readers—both of them—know that very little peeves me more than the news media's blanket categorization of real estate, as if there was one national market that can be conveniently summarized in nine words or less (see above). It can't, because there isn't, but that won't stop fearless real estate reporters from grinding out their one-size-fits-all coverage. For evidence, I offer the headline above, ripped from the virtual pages of a January 10 article on HousingWire.com.
In a moment I'll show that the idea, or even the barest hint, that home prices here have dropped to 2003 levels is accurate only by accident. But, really, what harm does this broad brush "analysis" of real estate do?
What if you're a local homeowner who might be persuaded to put her home on the market if she thought it's a good time to sell? "Home values in November back to 2003 levels." Does that sound like a good time to sell? Ever wonder why there's so little good inventory on the market in the neighborhoods where most people want to live? Ever wonder where most homeowners get their real estate information? It's not from the NAR, or from their son who's in real estate—even my own parents can't quite believe how much of a seller's market they live in—it's from their favorite trusted media outlet. "Home values in November back to Stone Age levels." "Better board up the windows, Pa. There's a storm a-brewin'."
Or what if you're thinking of buying in one of those favorite neighborhoods, but you're waiting waiting waiting for the magic moment when prices stop falling falling falling. Base your timing on headlines like "Home values in November back to 2003 levels" and you could wait yourself through a year or two of 10% annual appreciation.
So let's compare 2003 and 2011 average sales prices per square foot in five local, representative real estate markets.
Back to 2003 levels? Not so much. The real story here isn't that home prices are substantially above 2003 levels in four of five markets—and 43.8%, 14.8%, 16.8% and 10.9% qualifies as "substantial". No, the real story is that one of these markets, the only market that declined, is now obviously and grossly under-priced. Back in 2003, a relatively normal year for local real estate and two years before subprime lending reached its peak here in entry-level markets, East Palo Alto SFR sold for about what Mountain View townhouses sold for, which was about what Santa Clara SFR sold for. Which makes sense. X dollars got you, the first-time buyer, either an SFR on the pricey mid-Peninsula but in an area with baggage, or it got you a mid-Peninsula townhome in an area with buzz, or it got you an SFR in a South Bay city with not much baggage or buzz. The trade-offs all matched up. They still do, if you're comparing Mountain View townhomes to Santa Clara SFR, but East Palo Alto prices have fallen off a cliff, back to Stone Age levels. Which might explain, far better than a new Facebook campus, why EPA real estate is booming.
Next let's look at buyer urgency, as measured in average days on market (DOM) in those same local markets.
Certainly buyers felt less urgent last year than in 2003, at both the bottom and top ends of the local market, with Palo Alto the inevitable exception. But none of these performances are too shabby. Even at 65 DOM, Portola Valley would have tied for 6th-fastest market nationally back in July 2011.
Finally, let's look at sales, but mainly to see how irrelevant that often-quoted barometer of market health is.
Yes, 2011 Palo Alto sales were down from 2003 levels, while price per sq.ft. was up 43.8%. Just think how much more Palo Alto prices would have gone up if sales had gone up too! No, it doesn't work that way, or East Palo Alto prices wouldn't be down 39% even though sales are up 29%. But it would be nice to let Ma and Pa Homeowner know that the value of their Palo Alto home hasn't declined to 2003 (or is it 1903?) levels. Maybe then they could stop boarding up their windows and start enjoying their golden years.