But Real Estate trend cannot be reported from New York City; real estate markets have and always will be neighborhood specific.  The activity in the Bay Area and Silicon Valley are quite different than other places in the nation.   The demand for homes is quite good here, true, the demand may not be as good as it was during the top of the market in 2004, 2005 and 2006, but we are doing quite well in terms of demand compared to other areas.

The report below shows that of the top 10 cities, 5 are in California and 3 of those cities are in the Bay Area and our own San Jose represents the Silicon Valley. If we drilled down further, we will find other areas in Santa Clara County where homes are selling in less than two months on average.

Http Www Realtor Org Rmodaily Nsf Pages News 2011052502

Are we out of it yet?  Of course not. Have we by-passed the worst of it?  Probably.

However, as long as Silicon Valley’s unemployment rate remains above 11% and the dreaded shadow inventory along with the toxic option ARM fiasco about to recast in the coming couple of years, things will not be back to normal and we will not be completely out of the woods for a few more years until the market fully corrects itself by ridding itself of the excess capacity of distressed properties.

But, I don’t want to imply that there is only gloom in the horizon.  According to newly released sales data from CAR (California Association of Realtors), we here in Santa Clara County did fairly well in the past 12 months: the median price of our homes increased by 17%! I am quite certain that increase was largely fueled by the First Time Home Buyer Tax Credit Incentive program.

We went from $515,000 in November 2008 to $605,000 in November 2009. (Chart A)  That is certainly a step in the right direction towards price stabilization on the one hand, but a bit disconcerting because the affordability index has now fallen for two consecutive quarters and is now on a declining slope.   (Chart B)

I personally don’t believe it is in our best interest to get back to the peak prices of April 2007 when the median home price reached $868,410 (Chart C) and only about 25% of the first time homebuyers in California could afford to buy a median priced home (keep in mind that the median price in California is significantly less than Santa Clara County).  As the data in Chart C demonstrates, the median home price is inversely proportionate to the Affordability Index.   It is better for us to have lower prices so more people can afford to become home owners.  But regardless of what I think, the market will dictate prices.   We will see next year how the market reacts to the changing economic factors.