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July 27, 2006

Santa Clara Co. Home Prices: Lagging Versus Leading Data
by Jas Jain

The median price of resale SFHs (single family homes) that closed escrow in June 2006, in Santa Clara County, was $819,950, an all time high, up 7.89% from a year ago. This would prove to be the peak price unless the housing bubble is re-ignited, which is highly unlikely. Let us see how I can be so confident.

Below is a table of the median Listing Price of Sales Pending in Santa Clara County.

Most of the sales that were pending in early June took place in May and closed escrow in June. Right? No wonder that the median price for escrows that closed in June was nearly identical to the Listing Price of Sales Pending in early June. But, look what has happened to the median Listing Price of Sales Pending in the second half of July, to date? They are down $62-70K, about 8%, from the peak, in just 1½ months. These Sales Pending will close escrow in August and would be reported in late September. There is 2.5 months of lag in the data that I monitor and the reports.

Another very important reason is that inventory has been swelling every week, non-stop. Active Listings are up from 2494 to 3521 in the past three months (the number was 1300-1500 during July-August 2004). Currently, 100 additional listings are added every week. All of this swelling inventory is primarily due to declining sales volume.

One more important reason for sharp decline in prices and rising inventory in Santa Clara County - there is lot less Fraud Money, via Scam Options, now compared to 2-3 months ago! Everyone knows what has happened to tech Scams in the past 2-3 months, especially, Silly.con Valley based Scams. There is a definite correlation between NDX (NASDAQ-100 Scams), a good representative of the leading tech Scams, and the ratio of median home prices in Santa Clara County divided by the median California prices.

I get lot of grief from people who tell me how great things are in Silly.con Valley housing because they are talking about data reports that reflect the conditions three months ago, when lot of Fraud Money, e.g., Googloites, was chasing homes.

I predict a 5-10% drop from June to August for Santa Clara County home prices (an easy prediction from the data) and 10-20% by Feb'07. High-priced places like Los Altos should see a 20-30% decline, if not more, by Feb'07.

When the Existing Home Sales are reported for August, in late September, all hell will break loose in financial markets because the current "slowdown" mantra for the US economy will be replaced by recession in the near future mantra. The Yield-Curve is better predictor of the economy and the future course of inflation that all the economists that "inform" the public, including poor Benny, of course, combined. I know my US Treasury Yield-Curve history better than anyone (I didn't six months ago). People who ignore it do it with their own foolishness. And the people who are trying to explain it away are charlatans. Two clear messages of the current Yield-Curve are: high likelihood of a recession and falling inflation in not-too-distant a future. That would be devastating for Santa Clara County home prices and the e-CON-omy, because but for housing bubble the county would have been in a depression for the past four years. The employment is still significantly below where it was in 2000.

An apt epitaph for Santa Clara County housing: Homes that Fraud Money bought and Honest Money can't afford, or maintain.

Jas Jain, Ph.D.
the Prophet of Doom and Gloom

Copyright © 2004-2007 Jas Jain

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