GREAT question; we’re glad you asked! The answer is relatively simple; you need to carefully differentiate between media reports about the national real estate market and the local real estate market.

Media

It’s important to remember, real estate follows true principles of economic supply and demand. When supply is low, demand for each available home is increased, which pushes prices upward; when supply is high, demand for each available home is decreased, which results in lower prices.
Also remember, our local market seems to operate on a different planet than the national market.

Nationally, it’s pretty much gloom and doom in most areas. Inventory is rising close to all-time highs in many areas. Prices are declining in the vast majority of them. The number of homes heading into foreclosure, where the owners are falling behind in the mortgage payments, is increasing each month. And the number of homes being foreclosed on and auctioned off is on the rise.

Locally, however, it’s a different story. We do have rising inventory, and fewer transactions, but it’s not across the board. In Santa Clara County, areas which have high performing schools, such as Los Gatos, Saratoga, Cupertino, Sunnyvale, Los Altos, Mountain View, and Palo Alto, have not had huge increases in inventory. Those areas are (and may always be) in high demand, so the listings sell before they have the chance to pile up and increase in number. This demand has also kept the prices from slipping very much.

As you head south, the story follows the national headlines. In many areas of San Jose, and further south in Morgan Hill and Gilroy, the market is VERY slow. There are large numbers of foreclosed homes coming on the market, and numerous short sales. The prices have dropped and are continuing to drop. These areas were in the prime price range for the “no qualification, no verification” loans that were so popular with first time buyers. Most of those loans were at adjustable rates, and as the adjustments kicked in, many homeowners couldn’t handle the larger, adjusted payment, and went into foreclosure. As the foreclosed homes come back on the market, the inventory naturally rises.

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