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Tell Me What A Housing Crash Looks Like! This Is What A Housing Crash Looks Like!

Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. ()

July 3rd, 2007 · 2 Comments

Take a guess what I’ve spent the last few minutes thinking about a) Altos Research brand spanking new and oh-so-cool market stats features or b) an amusing anti-globalization rally I witnessed a few years ago in downtown Palo Alto or c) both.

Correct answer:  c!  My mind just works that way — kind of wacky, kind of random.

I figured I had to create a connection between the two, so I thought I’d modify the protestors’ slogan “Tell me what a police state looks like!  This is what a police state looks like!” into something real estate related — hence the title.

(As a side note, there’s a long list of reasons the rally was quite amusing, including:  a) there were more police, news folks, and gawkers than protesters; b) not a single one of the protesters looked like they had ever actually set foot in a 3rd world country, on whose workers’ behalf they were ostensibly agitating.  But we digress.)

Now, since I work in one of the few markets in the country that’s holding its value quite well, I had to look afield for some good examples of sustained, generalized price drops, and I found one:  Gilroy!  Observe:

Home prices in Gilroy, CA are dropping across the board The yellow line represents the median — ie. the 50th percentile.  The other lines represent the median of the 4 quartiles — ie. the 12.5th, 37.5th, 62.5th, and 87.5th percentiles if my math is right.

What does this graph tell us?  It’s pretty grim:  the prices in every quartile have been dropping.  No argument there!

Now let’s look at Palo Alto housing prices.  Who’s telling the truth:  us ever-ebullient Realtors, or the ever-gloomy doomsayers?  Turns out there’s a bit of truth in both sides.

Palo Alto housing prices continue appreciating in the 2nd and 3rd quartiles, but are showing signs of weakness in the top and bottom quartiles. The overall median — the yellow line again — shows that in general, the market is continuing its seemingly relentless upward march.
The second and third quartiles are generally rising as well.  The bottom quartile, however, is showing signs of weakness, with prices dropping.  Similarly, the upper quartile is also dropping.

What does all this mean?

First, note that we would expect more volatility when tracking the median of the top and bottom quartiles for the simple reason that only a few changes in the properties at the top or lower end need to happen in order to move those figures; the second and third quartile, however, have much more of a cushion from that kind of movement.

Secondly, the movement at the bottom may be an impact of the sub-prime market.  Getting into the Palo Alto market without a significant down payment is just plain tough these days, especially if you’ve got less than stellar credit.
Thirdly, does this mean that anybody considering a purchase around the $1M mark should hold off for a while, or that recent Google stock-vestees should restrain themselves from buying that tasty little $4M Atherton treat?  Possibly.  If you’re naturally a housing bear and skittish about the market, you probably shouldn’t be buying a home anyways — regardless of what any particular data set tells you — if for no other reason than that sleeping at night is a pleasant sensation.  If you’re an inveterate market-timer you may decide to wait a bit longer too — but when will you know that it is the right time to buy?
Time to spruce up the sidebar of my blog with these new charts!

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Tags: Atherton · Palo Alto · Real estate

2 responses so far ↓

  • 1 4MySales // Jul 4, 2007 at 10:10 pm

    It is great to see the Palo Alto market holding, even while my own San Diego market is in decline. Do you feel that the recent wave of venture capital money back into online businesses has contributed to the lift that you are seeing in your market?


  • 2 Kevin Boer, Realtor, Alain Pinel Realtors // Jul 5, 2007 at 7:58 am

    The wide open wallets of the VC community is definitely a factor, as is the fact that the tech economy in general is doing well right now. Google continues to hire something like 150 employees a week world-wide, of whom perhaps 50% are in their Mountain View office, and a percentage of those are coming here from outside the Bay Area. That kind of regular net immigration buoys demand.

    I think we’ll see our usual slight pullback during the summer, followed by our regular relatively strong fall market, and then, as usual, things will be very quiet from Thanksgiving through perhaps late January.

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