Wednesday, March 16, 2005

Home bidding wars reaching to heights of the dot-com years

By Broderick Perkins

First-time home buyers, out in force to beat the spring rush and profit-taking move-up buyers, boosted Silicon Valley home prices further into uncharted territory in February.

Based on closed sales, the median price of single-family detached homes and condos in Santa Clara County both rose $41,000 in February, according to the Bay Area Real Estate Market Newsletter , compiled by Richard Calhoun, broker/owner of Creekside Realty in San Jose.

That comes after a mere $3,000 price increase in January.

The record median price for Silicon Valley condos was $451,000 in February, $100,000 more than they were a year ago. The single-family detached home median breezed past the $700,000 mark with a $5,000 tail wind. The new record $705,000 median is almost $140,000 more than it was a year ago. Generally low inventories, steady demand from buyers and accommodating mortgage packages are largely responsible for prices that appear to know no bounds.

"Oh, man. Oh, my God," gasped mortgage broker Brandon Knapp when he first heard the new numbers.

But that wasn't because he was reeling with fears the market is about to go bust.

Knapp said lenders have so much confidence in the market that they continue to offer an ever-growing array of mortgage programs, each with what it takes to keep home buyers buying.

"Lenders are feeling so confident. They are allowing debt-to-income ratios of 55 percent. Lenders are accommodating the cost of housing because they feel it's a great investment," said Knapp, who works with Lawson & Associates Mortgage Planners in Campbell.

Calhoun, who sifts through data supplied by RE InfoLink, the area's multiple listing service, said on March 8 there were only three single-family detached homes on the market priced under $400,000; approximately 66 percent of the homes sold in February for more than asking; and buyers, on average, paid 103.6 percent of the asking price.

It's a market that is feeding on itself.

"When consumers go out and make two or three offers and lose, they begin to realize they have to go way up over the asking price or they will lose out," Calhoun said.

Fifty percent of the condos that sold in February were on the market for only seven days.

"That's where the market is really hot, because condos and townhomes are the only things that are affordable," he added.

Meanwhile, some real estate agents say profit-taking move-up buyers are having a liquid fuel effect on home prices, too.

The Almaden Valley area in South San Jose saw a $55,000 increase in the median price--from $855,000 in January to $910,000 in February--positioning the market as the region's next million-dollar home enclave.

Existing home owners are engaging in profit-taking and cashing in on large pools of equity to dive into move-up homes.

"We are getting a lot of move-up buyers, with the schools as the driving force. We have a lot of blue-ribbon schools down here. The older people are taking their profits and moving out to Sacramento, Las Vegas, Phoenix, and young families are moving in," said Margaret Yost, a senior Realtor at Coldwell Banker in Almaden.

Comprised largely of four-bedroom, two-bath homes, the sprawling suburb on March 8 had 37 homes for sale, of which 18 were listed at more than $1 million. Only a few homes were listed below $700,000, according to Yost.

"It may say it's listed for $800,000, but it may not sell for $800,000. You have to factor that in when you are looking," she said.

Mary Pope-Handy, a Realtor with Intero Real Estate Services in Los Gatos, said multiple-offer bidding wars are now commonplace and the over-bidding rule of thumb is broken.

"There was a home the other day listed at $810,000. It ended up going for $900,000. The rule of thumb of $10,000 over asking or 1 percent of the list price over asking is not working. In Willow Glen, a $950,000 home got three offers and they all came in close to $1 million. We gave up in Sunnyvale, where homes are overbid by $150,000 to $200,000. I think that's Google [stock option] money coming to market," she said.

Can the market sustain itself?

Barring some unforeseen cataclysmic event--including record increases in interest rates--probably.

The current market is the second strongest ever in the price increase trend, Calhoun says.

During the hottest-ever market, spurred by dot-com money, home prices moved up by $200,000 from January 1999 to April 2000.

During the current trend, since January 2004, prices have moved up by $150,000. With two months remaining in the current period, home prices need jump only $25,000 during each of the next two months to match the $200,000 increase.

In two months that would leave the median single-family detached home price at $755,000.


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