The Los Gatos real estate market is composed of many micro-markets in housing type, location, price point and condition. A Los Gatos condo in one school district may be in an entirely different type of market than an estate home with a view of the Santa Clara Valley or a golf course, of course.

Overall, though, the market here in Los Gatos is healthier than in many other areas within Silicon Valley. One one of measuring the health of the housing market is to follow the absorption rate. The absorption rate reflects the amount of time it would take for the current inventory of homes for sale to be bought up if no new homes came on the market and sales continued at their current pace. It can be days of inventory, weeks of inventory, or months of inventory tracked.

The National Association of Realtors uses 6 months of inventory as the tipping point between the market favoring buyers vs sellers. Under 6 months' inventory is said to be a sellers' market, and over 6 months is said to be a buyers' market. In the San Jose area, though, we are behind on housing starts and are used to homes selling fairly quickly, so most sellers will not feel as though 4, 5, or nearly 6 months' of inventory is really a market in their favor. They expect to sell in a few weeks, not a few months.

Here's a graph I did of the months of inventory in the Los Gatos real estate market for the first half of 2008 (in green) and also, for comparison's sake, the first half of 2007:

As you can see, the market was worse for buyers (better for sellers) in the same timeframe in 2007 as it is now. Since the months of inventory is a ratio of that month's closed sales to its active inventory, this data really reflects the month or so prior in terms of when purchase agreements were signed and accepted.  So looking at the numbers in April really shows you what was happening appx 30 days earlier (most of our escrows are about 30 days long).  In 2008, then, May and June were much better than the 4 months prior, and they reflect contracts written in April and May. June 2008 wasn't bad compared to earlier in the year, but clearly, the peak of the market was April because May's closings were the best.

Other data supports this too. I have a subscription to the Real Estate Report and the numbers there suggest that the highest median and average sales prices for single family homes peaked in April too (go to the page for Los Gatos and view the graphs).

Much of 2008 has been off in terms of the usual sales patterns but most years, the peak of the market is somewhere around March or April. At that point, prices frequently hit their high point of the year - great for sellers, not so great for buyers. By summer, the market cools down most years and sellers may be frustrated that they are not seeing the prices from a couple of months earlier in the year. For buyers, though, summer can be ideal since inventory is good and sales are a little lower.

No one can predict if the market will go one way or the other, but I would say that buyers are in a good position now if they want to get into a nice Los Gatos home.  The loan situation has calmed down and market conditions are favorable for most segments of the Los Gatos real estate market and there's a nice selection now. My advice to Los Gatos home buyers is simple: don't wait!

Silicon Valley vs Los Gatos (and a few other places)

Santa Clara County (Silicon Valley) has a declining number of sales but a rising median sales price. Does this mean that the average home is worth more now than it was a year ago?

It depends on the location and price point.

The news reports and statistics indicate that the market is split between the wealthier communities, such as Palo Alto, Sunnyvale, Cupertino, Saratoga, Monte Sereno, Los Gatos, and Almaden Valley, which seem to be experiencing a seller's market, and the poorer communities, including many places along the east valley, which seem to have a buyer's market. (See the San Jose Mercury News article from 5/17 and Broderick Perkins' article dated 5/9.) 

Entry level condos and homes on the east side are being impacted by the subprime loan problems - buyers are having a harder time qualifying for 100% financing and this is impacting the ability of those entry level homes to sell. The consensus is that much of the reason that the median home price is higher is because the lower priced homes just aren't selling. So it's not a case that "a rising tide lifts all boats" this time around. The numbers are skewed because of the falloff of lower-cost homes.

But in Los Gatos (and in many of the west valley markets), things are rosier than they were 6 months ago.  Closed sales in April (representing sales in March, generally) were up 26% over a year ago (countywide, sales were down from 578 closings in April 2006 to 431 in April 2007). 

And so we return to the question: what about the value of a home (my home)? Is it worth more now than it was worth a year ago?

The best way to analyse this is to find your exact floorplan, if possible, and track where it has been selling in recent years and where it's selling now.

Shy of that, a good way is to track the neighborhood as a whole and watch the average price per square foot.

On the eastern edge of Los Gatos lies the community near Belgatos Park (Belwood, Belgatos, and Surmont subdivisions). Generally, homes here are in the range of 2000-3000 sf though a few are smaller or larger than that. 

Here are the average prices per square foot for the last few years:

2003  $382
2004  $458
2005  $490
2006  $511
2007  $566.64  (just 2 closed so far, the least of which was at $537/SF) 

So this area of Los Gatos has risen steadily in value in recent years. It's very likely that it would be true for most of the town, if not all. Countywide, things are mixed. But in Los Gatos, it seems that yes, homes are continuing to appreciate well at this time.

View From Los Gatos

Los Gatos Annual Real Estate Trends