Real Estate Values, the Cronavirus and the Stock Market

This is the second edition of the Blog since I re-started it in late February 2020.

 Much to talk about and focus on the real estate markets for Atherton, Menlo Park, Palo Alto, Portola Valley and Woodside.

The comments I made last edition was the similarity of the price movement of the Standard & Poor's 500 and Real Estate values.  The recent lost in values of over 20%+ in the S&P and other US indexes have been joined with declines in the World's indexes.  From Canada to Japan to Australia, Hong Kong and Africa the World's markets have seen devastating loses that have taken away 50 years of growth in some countries and financial loses that are difficult to comprehend.

To review I have attached below the Historical Chart of the S&P 500 and the S&P Case/Shiller SF Home Price Index.  You will note in 2005 that the the decline from a high of about 220 on the S&P Case/Shiller index to 120 in 2010 to represented a 45% decline in home prices.  The decline in the similar period of the S&P 500 from about 1550 to 650 represented a 58% decline.  Subsequently values improved.

So what does not mean for home prices for Silicon Valley or SF area?  If history is a judge of the future the prices will decline.




Tops Round and bottoms Spike is a Wall Street saying.  Fear and Greed is the normal physiological reaction of humans.    Fear causes the spikes and greed the buying.  Buying to a point when prices are wholly over priced to a point they round as rationale thinkers are selling.






When I look at the home prices in Atherton, Menlo Park, Palo Alto, Portola Valley, I see the same price movement or chart formation that the S&P exhibited.

Home prices have progressively declined.  As posted in the charts below you will note all except Woodside have had successively declining home price highs.

This is the 5 County area of Silicon Valley.  Not very encouraging.  We have more listings than sales


Atherton has had a steady decline in the price of home prices.  While the "pops" over have occurred the "pops" are lower than the previous "pop" high.

Menlo Park has shown a very good ability to hold value.  The trend still is obvious in lower highs.




Palo Alto, like Menlo Park, has shown the ability to hold value.  It still has the obvious trend of lower highs



Portola Valley has a sharper decline in value than the  previous cities.



Woodside has always been an outlier.  What ever the market condition Woodside has never deviated.  A steady place for home ownership.



Redwood City has become the new mecca for affordable living and safe living.  No street beggars.  Children are safe to walk to school and parks abound with a safe and family atmosphere



The lowest mortgage rates on record are colliding with the prospect of an economic down turn complicated by COVID-19.  This is meeting an unpredictable Spring Selling Season.  Further complicating matter is the "Stay and Work at Home" phenomenon.  We in real estate have always done so.  As a former Wall Street Trader and Advisor, I always felt it better to work from home and only use the phone to communicate with others.  Will this new way of working have a long term effect?

Will workers find it easier to buy in a less expensive area with the same or better working and living conditions?  Will it be easier to telecommunicate?  Amazon has already made a dramatic change in marketing.  Brick and mortar retail businesses have crumbled away and or dramatically changed to adapt to the new normal.  Stanford students are being sent home to work and study and telecommute.  I had my Wharton Certification telecommuting.  I only went to Wharton for the finals and final lectures. after 2 years on line.

Home Sales will face uncertainty.

Remember History forecasts the future.  As the prices declined in 2005 in both the S&P 500 and the S&P Case/Shiller Price Index...they also increased.  Buying opportunities occur when fear is high.  Has that time come?  We will need to see how home prices have changed.  The home prices are not the exact reflection of the S&P.  Stocks are  liquid.  Homes are not.  30-45 day escrow closes in real estate reflect what has happened in the past.  We will not see the present prices until 30-45 days from now.

Real estate is an asset class and its movement is reflected in the stock market movement; along with other asset classes.  The large declines in stocks and other asset classes have historically been matched by declines in real estate values. Does that mean stock prices cause similar movement in real estate prices? NO!  It means that emotions of that affect asset prices are common in their movements.  Fear and Greed, Supply and Demand will not change.  Prices of all assets will once again increase.  When and from what level will asset prices increase or stop declining is still in the future.

Now is the time for buyers to begin to pick out their style of home and city to live in.  Asking price is just that. "ASKING"  Look at affordability and pick a price at least 5% under the list.  Remember you are buying a home not a trading vehicle. The same must be thought of in a seller.  They can live in their home and wait out the return in value.  Of course, from what value is also in the future.

Sellers must reflect on the statistics.  Prices do not jump up to past highs.  Prices slowly decline as buyers retreat.  Insecurity and fear take over.  Sellers must think about looking at the last high as a point to discount their list price.  Pricing at the high will only cause further  price cuts and cuts below what could have been gotten if the price was realistically below the past high.  The high oil 2005 was not seen until 2016, so consider and tame your greed instinct.

Where are the values?  Land Sales will and are the best value. While home prices have increased land prices have remained stagnant.  Next issue will discuss why buyers should look to vacant land sales as the best opportunity to build the home of their dreams; irrespective of what city in the Peninsula you prefer.

Gary