Los Altos Real Estate Blog

The Case/Shiller Index, which tracks composite home prices across 20 major metro areas including the SF Bay Area, shows those areas mainly up again in October.  The SF Bay Area edged up 0.4% from September to October, which is three months in a row of increases.  Here's the story from the SJ Mercury News:
http://www.mercurynews.com/business/ci_14086439

Does this really mean we've turned around?  I'd say yes.  As posted previously, both the median and average selling prices in Los Altos have increased each quarter this year.  Also, inventory levels have been dropping steadily which helps drive more demand.  That has been happening in Los Altos as well as Mountain View and Los Altos Hills.

You're probably wondering - why?  In my opinion, low interest rates and a strong interest in living here.  Rates are ridiculously low so anyone who can get a loan is getting one.

As for living here, we've got some of the best schools in the state, a comfortable semi-rural lifestyle (no streetlights, etc), and low crime.  People want that and are willing to pay for it.  We were one of the last areas to drop during the general market decline.  We're among the first to recover.

We'll see how it goes but I think 2010 will be a really good year.  I have a 4BR/2BA listing in Los Altos coming on the market in February so we'll see how that goes.

The SJ Mercury News printed a story this morning about a significant increase in purchases of investment properties in 2008 versus 2009.  The original article is here:
http://www.mercurynews.com/top-stories/ci_13972794

Investors have been active in other areas as well including Menlo Park (east of 101), East Palo Alto, Sunnyvale, and San Jose for the same reasons stated in the article; prices are low enough that costs can be covered by rents.

There was another article in the SJ Mercury earlier this year saying that a group of investors in the East Bay had pooled $6 million to buy homes priced at $100K or less to do the same thing.  Their expectations were that values would double in 5 years or less.  I don't see that happening, but I do see low end values going up.

Investors should also be looking at Los Altos but with a longer term picture in mind.  There have been several homes priced in the $1-1.3 million range where rents would probably be in the $3500-4000 range.  That rent won't cover the cost of PITI but it will cover most of it.  Down the line, Los Altos has shown a history of solid growth in equity.

The homes today selling for $1.2 million would have sold 2-3 years ago for $1.3-1.5 million.  Assuming the recovery continues and we see the value of entry-level homes increase in Los Altos, an investor in Los Altos could easily see gains of $100-300K in these homes in the next 2-3 years.

It's my opinion that the entry-level homes in Los Altos will move up the usual 7% per year we've seen in the past while the mid-range and high-end will grow at much slower paces.

The latest figures for the SF Bay Area have come out.  Look here for the details:
http://www.firstrepublic.com/lend/residential/prestigeindex/index.html

The average luxury home value for Q3 was $2,521,840, down 3.8% from Q2.  In the article a Coldwell Banker manager states that buyers in the $4M+ range are waiting for the market to stabilize.

For Los Altos, this means that the high-end within our area is having and will continue to have problems.  However, there are very few homes in Los Altos priced over $4M.  As of today, there are 46 active listings for single-family homes.  Of those, only 3 are listed for more than $4M and one is very close ($3.988M).  the majority of homes are listed for $1.5-3.0M.

In Los Altos Hills, there are 42 active listings available.  Of those, 17 are priced at $4M or more and two of those homes are exceptionally expensive; the ones on Natoma and Stonebrook priced at $22M and $28M respectively.

I think the Prestige Index is a nice indicator of how well the market is doing.  However, most listings that get sold in Los Altos and Los Altos Hills are priced below the threshold of that index.  With the turnaround in the economy, I expect we'll see continued strength in sales in Q4 2009 but with the average selling price dropping.  That will probably change in Q1 2010 as high priced listings come back on the market and start to close in late Q1.