The 76-page 2010 Index reports the latest data and trends in economic development, workforce, housing, education, public health, land use, environment, governance, arts and culture and other sectors throughout Santa Clara and San Mateo Counties and portions of Alameda and Santa Cruz Counties. An accompanying Special Analysis section of the report each year takes a closer look at a particularly significant topic.

Some of the issues highlighted in the publication include:

• Shifts in methods of funding innovation
• Governmental forces negatively effecting the region
• Decline in employment opportunities
• Housing affordability
• High commercial vacancy rates

All is not bad, but the report is not overly optimistic.  If you like analytics and statistics than this is the publication for you.

Taking a quick look at the tax records on these properties, it is interesting to see how these properties and their owners got into financial difficulties.

Surprisingly, it appears as if only one of these homeowners used the property as an ATM. Six of the owners bought the properties as investments.  They remodeled the existing structure extensively or built a new home with the intent on selling and cashing out. It appears the last two “investors” ran out of money and/or the market turned sour before they could build.

Compared to two or three years ago, these properties are a solid investment because they will sell at about a 40% discount from their peak list price. 

However…

(1) These properties were clearly overpriced when they originally hit the market (otherwise they would have sold). They also provide an excellent example (worst case scenario) detailing what can happen when a seller over-prices his/her home and ends up chasing the real estate market down.

(2) With every upswing in the real estate market, there tends to be some sort of correction.  In the last 2 decades the upswings have generally outpaced the downswings and property has appreciated well.  A Los Altos home bought in 1995 for 500K is worth 1.2 million today.  However, that same home bought in 2007 for 1.5 million is worth 1.2 million today.  Unfortunately, our current market correction is much deeper and longer than most “experts” (and novices) believed could occur.

(3) Even though we are seeing some signs of recovery in our economy, we are unsure about the overall strength of the Los Altos real estate market. Therefore, it is tough to determine whether today’s “good buy” will be looked upon as such in the coming years.

View MLS Area 208, Waverly Park Mountain View CA in a larger map

Below are the first quarter statistics detailing the number of new listings and the number of sales of single family homes in the MLS area 208.  Sales are down slightly and listings are up (listing numbers are similar to those in 2001-2003). 

Prices continue to soften and inventory continues to build.   520 Chesley Avenue is an excellent “real life” example documenting the declines in Waverly Park home prices.

According to our local MLS provider, 520 Chesley Avenue was purchased by a local Realtor in March 2008 for $1,537,500.  On April 1st, 2009 it came on the market at $1,299,000.  It has been on the market for 19 days and is still an active listing.  If it were to sell today for it’s list price, it would be a 15% discount from it’s purchase price of a year ago. 

Below is a graph that shows the average sales price versus median sales price for the first quarter of each year (since 1998).

The graph shows a 20%+ drop in prices since the (apparent) high in 2007 (also a 15% drop from last year). 

The absorption rate of single family homes for sale in Waverly Park is approximately 6 months.  The absorption rate is how long it would take, in months, to sell the existing inventory available on the market at the current rate of sale.

What have we learned from all these pretty graphs and data?   It is still a strong Buyer’s market! 

More and more homeowners are using salvage companies to remove usable building materials.  Generally this method is more economical and reduces landfill waste.  Whole House Building Supply & Salvage (Whole House) in East Palo Alto is one such company.   

Another neighbor recently used Whole House for it’s home’s deconstruction and received a tax right off which almost covered the cost of the home’s demolition.  How does it work?

Whole House works with the non-profit East Palo Alto Council of Tenants Education Fund (EPACT).  The homeowner consults an appraiser to determine the value of the construction materials of the home.  The construction materials are then donated to EPACT. 

A crew from Whole House dismantles the home by hand, seeking the maximum re-use and recycling of materials from the building.   The items are then sold to the public at their warehouse at 1955 Pulgas Road in East Palo Alto.  Sometimes the sale occurs at the property.

Demolition generally takes longer than using a large backhoe and Whole House doesn’t remove all items from the property. Concrete, asphalt, and hazardous waste are some of the items that aren’t taken (see Whole House’s web site for a complete list of salvageable items).

If you’re looking for usable doors, pedestal sinks, windows, flooring etc., Whole House’s warehouse is a great place to look.  You also can get on their e-mail list which will alert you to their next home demolition sale.

Below is an example detailing one investor’s reasoning for purchasing a single family home in Los Altos as an investment.   

I represented the seller of a property in south Los Altos that closed escrow in December  2008.  The buyer completed a 1031 exchange, selling two properties in southern California and “trading up” and purchasing a single family home as an investment property in Los Altos.  Each of the properties in southern California had good cash flow and a reasonable rate of return (apparently, he owned them for quite some time).

One may ask why this investor took two properties that had good cash flow and a reasonable rate of return and traded up to a home in Los Altos that would (initially) have a much poorer rate of return and less cash flow?  Usually, one doesn’t buy a $1,350,000. home and rent it out for $4,500. per month and call it a good investment.  The answer…

Two reasons:

(1)  Short term: the ability to locally manage the investment property – it tends to be easier and less expensive.

(2) Long term: the Los Altos investment property will eventually be converted into a personal residence and the investor’s current (personal) residence will be sold.  This allows the investor to take the 500K capital gains exclusion on the sale of their personal residence yet maintain a residence in Los Altos.

This type of transaction has tax implications and the 1031 exchange has specific rules to follow, but with proper planning this type of investment can save an investor tens of thousands of dollars.  This investor analyzed the real estate market in Los Altos and saw the potential to make a wise investment that made sense with his overall investment objectives.  Smart guy!

Note:  Should you be interesting in investing in real estate, make sure that you have a well qualified tax consultant to answer questions specific to your tax situation.  Without one, you can get yourself into a lot of financial trouble.

From the Fed’s statement released today:

“The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.  While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.  Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

What does this mean for consumers? 

The rate cut is designed to stimulate the economy, which includes the housing market by helping more individuals qualify for loans and increasing an individual’s purchasing power.  Those who have home equity lines of credit that are tied to prime or short term Adjustable Rate Mortgages (ARM) could see an immediate reduction in their interest rate.  Those consumers who have adjustable rate mortgages that are tied to key indexes like the one year treasury bill, 12-month treasury average and LIBOR index may receive the benefit of this reduction as the indexes start to move lower in conjunction with lower rates.  Below is a graph of the Federal funds rate since 2000

The biggest issue in Los Altos Real estate has been an abnormally low level of homes available for sale.  Inventory in 2007 (400 homes) dropped by almost 27% from its 9 year average (545 homes), yet median sales prices continue to climb to an all time high (221% climb from 1998 -2007).  Using data pulled from MLSlistings.com, I have broken down the numbers for the last 9 years.  I will over the next four weeks introduce you to the four major sub regions of Los Altos real estate: South Los Altos, the Country Club area, the Highlands area and North Los Altos. 

The median sales price in Los Altos has risen from $790,500. in 1998 to $1,749,000. at the end of 2007.  If you’ll notice the previous peak was in 2000 at $1,400,000.  After the dot com bust in March of 2000, our market took nearly 4.5 years to recover and surpass the median sales numbers of 2000.   The last three years has shown growth in median sales prices of 17% (2005), 1% (2006) and 8% (2007).  For those of you fortunate enough to buy in 2001, you have seen an increase in median sales of 58%. 

Paying online takes only a few minutes.  All you need is to type in your street address or parcel number and up pops the tax due.  Select payment options.  Select paying installment One or select paying both installments.  Choose method of payment and complete the transaction. 

                            Just type in your address!

Another nice feature about the online payment system is the ability to pull up your payment history.  This can make it easy for those who have lost their cancelled checks to know when (or if) they paid their property taxes.  Because the system is so easy and detailed, there is a loss of privacy.  For example, that nosey neighbor down the street who is always into everyone’s business, can find out what you pay and your payment history.   And yes, I realize this information is of public record, but this system makes it far too easy for anyone to get your information.  After having my credit cards stolen, I might be a little more paranoid than usual.

Absolutely!  One need only to look to the preeminent real estate authority (at least in his own mind) whose knowledge and expertise can bring clearity to our real estate market.  We need an uplifting word from “The Donald”.

Actually, there are several good reasons for Silicon Valley buyers to make a move now versus later.  Please read the following article titled Silicon Valley More Bullish on Buying than Selling writen by Broderick Perkins.

The investment looked good and the return on the investment looked strong.  The property was located in what appeared to be a good area.  The complex had a good rental and occupancy history and rents were substancially below market.  In general, real estate in this area was appreciating at about a 4% rate.  The investors bought the complex at a discount with the intention of rehabing the units and raising the rents to the current market rate.  However, during the rehab, several small problems came up:  supplies, tools and appliances were taken from the job site; illegal substances were found in some of the units; and lastly,  incompetent tradesmen created more “issues” than they resolved.  It was beginning to look like this investment would not be as strong as expected.

Over a period of several months, as each unit was completed, they were rented out.  Unfortunately, this took a little longer than anticipated.  But, not too out of line.  After 5 months, the complex was creating a positive cash flow and after 8 months all the units were rented and things looked good.  Over the next several months things went smoothly.  The investor only had to deal with the usual problems associated with owning a 15 unit building (ie snaking a toilet every now and then, landscape maintenance etc.).  Jump forward to month 15…

The investor gets a panicked phone call from one of his tenants and later that day, the police.  According to the tenant, two masked men broke into his unit wanting money (more likely drugs).  There was a scuffle and several gun shots were fired.  Fortunately for the tenant, he survived with only a small head wound.  Unfortunately for the investor, several walls had bullet holes and the brand new refrigerator took one for the team and went to the appliance heaven in the sky.  The gunmen left without getting what they had come for and the tenant (in fear that the gunmen may return) never came back.  Soon, other tenants gave their notices.  Now the occupancy rate is back down to around 60% and the rental market has become a little softer.