Los Gatos Real Estate Market:
September's Numbers are Now In

August is often a quiet month for real estate here in Los Gatos (and Silicon Valley generally), but September and October are very often quite active.

This year, August was far better than September. The "mortgage mess" seems to be at fault. I noticed mid-month that we weren't getting anything like normal activity. The numbers bear this out.

A very clear way of measuring the market activity is by looking at the absorption rate or "months of inventory". This is a look at how long it would take for the current inventory to sell if no new homes came on the market, but sales continued at the same rate.

As an example, imagine a bathtub full of water. If no new water is added to the tub, how long would it take for the water to drain out? That's how the absorption rate, or months of inventory, works.

Tonight I ran the absorption rate going back ten years. (If you want that much data, email me - I'll send you my excel spreadsheet.) For the sake of simplicity, I'll share with you just the numbers going back to early 2007.

The numbers below all represent "months of inventory" for the Town of Los Gatos in 2007 (includes 95030 and 95032 zip codes, but not 95033, which is county and not town area and has a different market):

January 3.7
February 3.55
March 3.93
April 3.02
May 4.64
June 3.27
July 3.37
August 3.75
September 5.79

As you can see, September is much worse than the rest of the year. It is true in most of the county that the market somewhat flipped into a more severe buyer's market in September. Sales were down, listings up. There's downward pressure on pricing, and we are seeing buyers unwilling to pay the prices of a few months ago.

That said, 2006 was in fact much worse a market than 2007 has been overall. September's jump with the absorption rate is a concern. Will this be a blip, or is the market going to behave more like 2006?

Buyers are on hold because interest rates are up. This week a buyer client of mine emailed me that rates are .75% higher than he was expecting. So he's going to wait until rates come down (or prices come down enough to compensate).

When buyers wait and inventory rises, prices come down.

The sellers who respond quickly will not find themselves chasing the market down. It is difficult to make price reductions when mentally we've already decided that a home is worth a certain amount. But like the stock market, the real estate market is always in flux. A fair price in July is an overly high price today in the minds of buyers.

Buyers: buy now, while prices are soft. Refinance later when rates improve. Just make sure you get a good loan that you can live with if rates go up rather than down.

For more information, data, and opinion on the market, please visit my online Real Estate Report. There you will find the latest stats on not just Los Gatos, but all the cities within Silicon Valley and the major districts within San Jose.