Monday, January 5, 2009

Glimmer Of Hope?

A Sight Not Seen For A Long Time

It may just be new year fever, but there are signs of things stating to improve in the Silicon Valley housing market according to the SJ Mercury News today. Although prices are down 40%, year-on-year sales in Santa Clara county, November '07 to November '08, were up 14%.

Obviously there are a couple of effects at work here: inventory and affordability. Back in November '07, low-end houses, where there's always been an imbalance between supply and demand, were few and far between, and let's be honest you really didn't get much for your dollar. Fast forward 12 months and now you have a lot more choice within a given price band and you get significantly more house for your money.

If you are employed, solvent and can get a mortgage, life is clearly pretty good for house buyers just now. If prices are truly down 40% in your chosen area and you are still making what you made 12 months ago then it's hard to see any reason to sit on the sidelines much longer, unless of course you think you may get laid off sometime soon ... which alas is still a fear for a lot of SV workers. So apart from the solidly employed, who else is buying?

It seems Silicon Valley is luring real-estate investors back to its bosom. From a year ago, sales to absentee or investor buyers rose 38% to now account for 11% overall. Which is a lot. And interestingly, those investors are spreading their dollars across a broad church of property districts from the relentlessly up-market (Los Altos Hills, Atherton etc.) to the more Blue Collar(San Jose, Alviso, etc.)

Does all of this signal that we have reached a bottom and that things are now starting to turn around? From a real-estate perspective then ... perhaps, especially at the low end of the market and particularly once Spring arrives, by which time post-Christmas layoffs will be over, any businesses who couldn't scrape past the new year sales will be gone and company budgets will be set for '09. Add to that the chance for a "new president dividend" in terms of optimism & consumer sentiment and things might be looking brighter than they have done for quite a while.

The real signal for a broader upturn will likely be when Wall Street stops reacting negatively to further bad news. That's been a leading indicator of recovery in at least the last two significant recessions and no reason to think it won't be so once again. Wall Street is basically a forward-looking discounting mechanism and hence a leading indicator of corporate recovery. Therefore, it will be very interesting indeed to see how the markets react in these early weeks of January to new economic or political data that's perceived to be negative. If there's a floor found over that period then we may well have found a base for the much-mooted second-half recovery.

Happy days are here again? Not quite, but perhaps we might at least cancel the suicide watch.

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