In a former life, I was a middle school math teacher. In the Peace Corps. In Botswana. I distinctly remember spending a number of days teaching about the importance of place value in numbers — you know, the concept that decimal points and zeros aren’t just decorations. .32 and 3.2 and 32 and 320 are distinctly different.

As far as I know, none of my former students are Realtors in Palo Alto. Which might explain this juicy little chart from our friends at Altos Research:

Note the drop in per-sq-ft prices a few years ago, from $75,000 per sq ft down to perhaps only a thousand bucks a sq ft. Then, a massive run-up back to over $20,000. Then back down again. Kind of like a scary roller-coaster ride.

Even during the incredible run-up in real estate prices, trust me, we were never at $75,000 per sq ft! The explanation for that chart? Simple: Every now and then a listing makes it onto the MLS with a misplaced decimal or zero. A $2,000,000 home gets listed for $200,000 (these mistakes are typically corrected quite quickly when the listing agent gets 100 phone calls in the first hour from agents wanting to make offers.) Then a $700,000 home gets listed for $7,000,000. (These mistakes take longer to correct. The agent wonders why nobody comes for the open house, then figures it out.)

Then there’s the square foot mistake, where a $1,600,000 home (price entered correctly) gets its floor space shrunk from 2000 sq ft (correct) to 2 sq ft (incorrect.) Voila! This home now costs $800,000 per sq ft! A few of these in the same week, and poof! Up goes that average!

Athol Kay has proved that, as a species, we Realtors aren’t that good at taking pictures. But for the love of God, people, can we please please please remember the importance of correctly-placed decimal points and zeros!

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You heard it here first! A few weeks ago I posited that the Palo Alto market would soon see the standard Spring inventory bounce…before Spring itself.

And sho’ ’nuff…I see nary a leaf on a tree outside my window, but statistical and anecdotal signs of market activity picking up are legion.

Statistical evidence:

Charts from our friends the statistical geniuses at Altos research show the traditional early year inventory bounce happening in Palo Alto — Swiss-clock-like in regularity:

Anecdotal evidence:

• An escrow rep friend of mine says her order book is fuller than it’s been in six months.
• The manager of a mid-size local brokerage says his agents have been going on listing appointments, getting new listings, and writing offers at a much faster clip than in the last few months.
• At least one transaction in Palo Alto last week sold with multiple offers and sold for a substantial amount more than the list price.

Quotes:

Friend, fellow 3 oceans contributor, and Realtor Chris Iverson of The Ventoux Group says:

Listings are starting to increase, but slowly in Palo Alto. Mountain View and Los Altos seem to be off to a slower start this year than last as well.

I am seeing more activity from Buyer prospects since the beginning of the year, but a lot of them have gone back to a “wait and see” attitude following news of the potential increase in the conforming loan limit. That will have a significant effect for first-time buyers in areas like Mountain View and Sunnyvale, where $729,000 gets you a decent townhouse, or a house in Sunnyvale.

Jeff Klein at Absolute thinks it will take about 6 months from the conforming limit change for the resulting loans to be available to buyers, and for the impact on the market to be felt.

Colleen Foraker, of Alain Pinel Realtors in Palo Alto, says:

“We in the industry need to do a better job of educating sellers that this is actually a great time to sell.  Inventory is at a 10-year low, and we’d love more listings.  Problem is, sellers are reading the media, hearing that the market is up to no good, and deciding to wait it out.”

Steve TenBroeck, also of Alain Pinel, notes on his blog:

This past week was brutal!   Last Saturday & Sunday we had the most traffic ever to come through our open houses.  However, on Monday (MLK Day) foreign stock markets crashed.  On Tuesday the Fed dropped the Prime Rate by ¾ of a point.  And by Wednesday, according to several agents, local buyers were retracting their offers to purchase homes.  Then, at the end of the week, Congress came up with a plan to restore confidence and stability in the market.

…

We continue to get calls from prospective home buyers who believe that it has become a “buyer’s market” in our area … The bottom line: demand for homes exceeds supply in this market place.  It was reported this week in the SF Chronicle that in 2007 the Bay Area added 54, 000 jobs.  It’s expected, they said, that at least 15,000 jobs will be added in 2008.  While the housing market nationally and in the wider region of the Bay Area may be the slowest since the Great Depression, the housing market from Menlo Park through Los Altos is very strong; homes sell quickly, often with multiple offers.

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I want to underscore the importance of what Kevin is discussing in his post regarding statistics and the actual market activity that they represent. Because the neighborhoods in Menlo Park are not distinguished by ZIP code or city, which are two popular methods of segregating data, it is easy to draw an incorrect interpretation of what is happening there.

The Band-Aid fix that I have been using with my clients interested in Menlo Park is to explain the nature of the market, and then look at the market data for the upper two quartiles of homes only. Conveniently, the homes in the areas of Menlo Park East of 101 are all below the mean for the whole city, while those West of 101 are generally above the mean overall.

Scott at Altos Research sent me the following interesting bit of analysis of how an outlier can throw off the statistics for an area. It seems there was recently at home in Del Mar in Southern California listed for $76 million.

The Median home price is reflected here (Median = half the homes on the market are listed above this price, half below):

The numbers are weekly, and we can see how having a limited number of data points (homes for sale) bounces the numbers around. 

Maximum price for Del Mar during the same period:

Gee, I wonder when that house was listed, and what the selling commission is?

And here is how the mean (average) price of homes in Del Mar, California is affected as a result:

So, the average price of a home in Del Mar, CA took a nice bump, but does that mean that the house at 123 Main Street went up in value by over 50%? Sadly, no. Similarly, when and if that bad boy sells, the mean price of homes in Del Mar will drop correspondingly, but the value of 123 Main will not be affected at all.

So, to all of you living in on the Peninsula crying in your Cheerios because you read in The Chronicle that home values in California are off by 20%, RELAX, and ask your Realtor what is really happening with the market in YOUR neighborhood.

Rember, real estate is LOCAL, especially here.

Thanks for reading.

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Mark Twain, it seems, merely popularized, but did not actually coin the phrase Lies, Damn Lies, and Statistics.  That honor belongs to none other than the British statesman Benjamin Disraeli, the first Earl of Beaconsfield, KG, PC, FRS.  (With all these acronyms after his name, one wonders if he may have been the first Realtor!)

I’ve ranted not infrequently about how real estate is local, local, local.  What nationwide, statewide, or countywide prices are doing may or may not reflect your city.  The overall trends in your city may not be a good indicator of your particular neighborhood.

And that’s where Benjamin Disraeli’s famous quote come in.  You can make numbers tell whatever story your bias prefers.

The story I’m about to tell is hyperlocal if ever there was one.  If you’re not in this immediate area, the lesson for you is not in these specific numbers, but in the notion that you have to understand your local market.

Here, for instance, is a pretty bad story to tell, and it appears that the story, as told by the great numerical storytellers of Altos Research, is quite simple:  home prices in Menlo Park are in freefall, with the median having dropped from an all-time high of $1.65M in mid-2005 to a current $875K-ish.  2007 prices have — apparently — dropped by 30%:

That story just doesn’t make sense to me, however.  The marquee towns up and down the Peninsula — those with good schools and their associated high prices — have actually done quite well over the last year.  Why would Menlo Park be any different?

Palo Alto:  Median prices mostly up last year, with a retreat in the latter part of the year, and signs of another season upsurge upon us…

Los Altos:  An incredible run-up in prices, again with a dip last year, and again with a sign of a revival this year…

Los Gatos:  A rise last year, though not as much as the other towns, and a pullback in prices in the latter part of the year…

You get the picture.  Why then is Menlo Park so different?  Have prices really dropped by 30%?

The answer?  Most emphatically not!

In fact, take a look at these numbers, pulled from our local MLS.  Of the twelve Menlo Park neighborhoods, only two of them had median prices go down in 2007 — and then only by 2-3%.  Other neighborhoods saw medians rise from 5.6% (Flood Park) to 35.6% (Alpine Road Area.)  The following graph shows the percentage change in median prices from 2006 to 2007.

How can both of the following two facts be true?

• Median home prices in Menlo Park have dropped by 30%
• Median home prices in 10 of 12 Menlo Park neighborhoods have risen, while median home prices in the remaining 2 neighborhoods have fallen, but only modestly.

The answer, Mssrs. Disraeli and Twain, lies in a different statistic:  the amount of inventory on the market.  Take a look at the story told in this graph, which shows the number of homes sold per year by neighborhood:

The sheer amount of data in this graph, and its size, makes it hard to read.  The key points:  the number of home sales in Menlo Park in 2007 was just over 400 — significantly lower than the wild years of 1999, 2004, and 2005.  The number of homes in the “East of US 101″ neighborhood — the least expensive one – however, increased dramatically.  The average number of annual sales in that neighborhood is 36, but last year there were fully 69 — just about double — the number of sales.  In the higher-priced neighborhoods, on the other hand, there were fewer sales than normal.

Another graph…this one showing how many sales typically happen in a year in each neighborhood, followed by how many sales happened in 2007:

The lowest-priced neighborhood — East of 101 — had a dramatic increase in the number of transactions; almost every other neighborhood — in particular the expensive ones had fewer sales.

So this, ladies gentlemen is the key story that Mssrs. Disraeli and Twain — not to mention my stats professors — would want us to understand:

• The median price of homes in Menlo Park has indeed dropped in 2007.
• The price of most individual homes in Menlo Park, however, has actually increased in 2007:  that is, most homes were worth more at the end of 2007 than they were at the end of 2006.
• The anomoly between the above two points is explained simply by the mix of the homes that were sold:  2007 saw a much higher than normal proportion of less expensive homes.

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Recent sightings of Vendus Encourigitis — a local Palo Alto insect that emits pheromones that make sellers drop everything they’re doing and get their home on the market immediately — indicate that 2008 may turn out to be a similar year to several of its predecessors.

Here’s how this insect affects the local inventory cycle…

Buyers, sellers, and real estate agents go into Trypophan-induced hibernation around Thanksgiving, and tend not to wake up till early January. Not many new homes come on the market during that time, and not many buyers are out looking for them. This tends to be a time of uncertainty in the market: sellers are not confident about putting their homes on the market because, well, other sellers aren’t putting their homes on the market; similarly, many buyers are spooked out of the market because they aren’t seeing crowds of competition at open houses — ergo, this must not be a good time to buy.

Putting aside all questions of whether such assumptions and actions are rational or not, come January, swarms of Vendus Encourigitis descend on the city and — kablooei!!! — before you know it, the market gets unstuck, sellers finally put the for-sale sign up, and inventory starts its predictable upward march. Shortly thereafter, a related insect — Achetus Encourigitis — begins its work on the buyers, and sure enough, they descend en masse on open houses and begin buying.

Data provided by our friends at Altos Research shows us the pattern for the last couple of years: inventory is at a low at the end of the year, and begins to increase as soon as January rolls around:

A number of nearby towns exhibit similar patterns…

Saratoga:

Los Gatos:

What’s interesting about Los Gatos is that its beginning of the year inventory is somewhat higher than it normally is. Arn Cenedella* of Coldwell Banker notes a similar pattern in Menlo Park real estate, while Dave Blockhus*, also of Coldwell Banker, notes that Los Altos’ real estate inventory pattern is more similar to Palo Alto’s.

Further up the Peninsula, Burlingame has a similar pattern:

Roughly the same trend happens in many of the marquee towns up and down the Peninsula, while in the less tony towns a completely different picture is emerging — more on that in a later post.

* Dave and Arn are both clients of 3 Oceans’ sister company Domus Consulting.

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With all of the media coverage about the implosion of the real estate market and the rising rate of foreclosures, every time I turn around someone is asking me about the health of the local real estate market in and around Palo Alto. They seem to expect me to echo what they are seeing on TV and reading in the newspaper. Nothing could be further from the truth, especially in Palo Alto, which is still enjoying a Seller’s Market with prices maintaining their stratospheric levels as hordes of well-qualified buyers patrol the city in hopes of seeing something new to look at. Last week there were a whopping three (that’s 3) new homes coming on the market in Palo Alto.

When hearing this unexpected good news on the health of the largest investment and asset that most non-Google employees have, a few folks have asked me if I think this market will continue (I do - subject of another posting), and that they are considering selling their homes in the Spring.

Spring, like April 2008? I ask

Yes.

Why then?

Well, that is when all the houses seem to come on the market, so that must be the best time to sell . . .

I have gotten better at controlling my reaction (giggling is a great way to start off on the wrong foot). But I then usually explain things in economic terms of Supply and Demand.

If you are a lemming seller and put your home on the market when everyone else does, how do you make it stand out from the competition? You can spend more on preparation (fresh remodel, landscaping, staging, etc.), more on marketing (more advertising, open houses, etc), or you can price it below the competition, or a combination of all three.

These approaches all result in less of a return for the homeowner at the end of the day, much like the price of oil usually drops in May because demand for heating oil has dropped off and the summer driving season hasn’t started yet. Alternatively, when oil is scarce like during a particularly cold winter, or if oil producers reduce production, prices go up.

What if you could make a house scarce? Would that increase the relative interest level and selling price?

Generally, we see the number of homes in Palo Alto for sale increase in mid-February and be high until around Memorial Day, then there is another seasonal increase after Labor Day until late October. Seasonal lows in inventory run from mid-November to mid-February, and then there is another drought in late Summer. Selling prices tend to run inverse of these seasonal inventory fluctuations, as greater scarcity creates greater perceived value for Buyers.

In Summary, an easy way to get your property to stand out is to put it on the market during one of the low inventory times. Serious buyers are always looking, and who would you rather have trooping through your home, serious, qualified Buyers, or people who like to look at houses on a pleasant weekend afternoon?

If you are considering selling, don’t be a lemming and wait until Spring, contact your real estate professional and have him or her show you market data and discuss how to get your home on the market during one of the “off-times”.

Skeptical? Don’t believe me? You can see objective market data for your area, courtesy of Altos Research here, or sign up for a customized report on the market in your area here.

Thanks for reading.

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After a wonderfully fun — and occasionally frustrating — evening of hacking around, I’m please to present this mashup of Bay Area housing price trends. The graphs are from our friends at Altos Research, and the Google Maps were created using Zeemaps from Zeesource.

For a larger map, click here.

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Now ya don’t have to be a programming genius to put together neat mashups. I put this together using Altos Research data and a Zeesource map.

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If there’s one thing I learned from my tenure in consulting (apart from the names of the cabin crew on the mid-Sunday afternoon American Airlines flight from SFO to JFK…) it’s that the numbers always tell a story.

Remember this neat little chart from our little “Frolick with the data” yesterday, provided by those whiz-bang numbers folks at Altos Research?