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December 06, 2007

For the MOST CURRENT Los Gatos real estate market information, please click on the header above to visit the most recent posts. Each week there will be an update to the housing market in Los Gatos, so return often!

The real estate market for single family homes in Los Gatos is moving more into a buyers’ market. Values may be slipping some, but the big story is the fact that so few homes are selling and closing. Whether you compare November 2007 against other recent months or against other Novembers in the last ten years, sales are clearly, and dramatically, way off.

Let’s take the number of closed sales from November for the last 10 years, then we’ll look at the absorption rate, or “months of inventory” for Los Gatos in recent months.

Graph reflecting closed single family homes in Los Gatos for the month of November in the last decade

As is apparent in the graph, closings are at an all-time low for November over the last decade, and in fact is about half of average. This movement is not exclusive to Los Gatos but is being seen all over Silicon Valley; this is the reason there are so many layoffs among lenders, title companies, and real estate offices (in support staff, not commissioned sales people). So even “seasonally”, this is unusual.

Next, let’s look at the “months of inventory”, meaning how long it would take to sell off the current inventory (how many months) if nothing new came on the market and homes continued to sell off at the rate of the closeds for the month. Here, too, the figures show a deepening buyers’ market. (Under 6 months is considered a sellers’ market by the National Association of Realtors, over 6 months a buyers’ market.)

Months of inventory for single family homes in Los Gatos from Nov 2006 to November 2007

Again, the month to month view is a clear reflection of the slowing market and the reality that fewer homes are selling. The larger the number of months, the harder it is to sell.

Some experts predict that things will calm down in 2008 and we’ll have a flat or normal market, or very slight appreciation at best. Other experts predict a worsening real estate market.

Silicon Valley often marches to the beat of its own drummer. Since we have geographical constraints (two sets of mountains and a bay), a good economy and a housing shortage, I believe things will go fairly flat for most of the valley in the next year or two.

It always comes down to supply and demand. Right now there’s plenty of supply in Los Gatos (about 108 homes). In neighboring Saratoga, though, there are fewer than 75 homes available – so the absorption rate there looks very different. If, in the new year, there are a lot of homes on the market, it will put downward pressure on pricing and homes will sell for less than they’re selling today. If inventory tightens up, that won’t happen.

Tomorrow: the real estate market for condos and townhomes in Los Gatos.