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A friend sent me some information today that he received from someone trying to understand the Saratoga real estate market in the $1.2-1.8 million band, who concluded that with 34 active listings and 10 in escrow (as of 10/22/07) that “inventory is bad – only 1 in 3 are selling”.
This begs the question of what is a “normal” real estate market (when the number of buyers and sellers are in “relative balance”) and correspondingly, what defines a “buyers” or “sellers” market. Here are some of my thoughts:
1.  It is dangerous to generalize about whether the real estate market is normal or out of balance because it is really a bunch of descrete micro-markets with highly localized neighborhood factors such as school districts, prestige and housing life cycle stage.
2.  Neighborhoods frequently have sales cycles (relatively little inventory followed by a rash of listings ) as sellers hear what price their neighbor’s house sold for.
3.  It is not a “bad” real estate market (for either sellers or buyers) as long as properties are selling with some rapidity as evidenced by pending sales. Some areas will always be stronger or weaker than others. Saratoga is generally strong.
4.  If multiple offers are still occurring for some properties, then it is not a “buyers market.”
5.  “Relative balance” does not mean that every home put on the market will sell at its initial list price or above. Many sellers (particularly after a run up in prices due to multiple offers) are unrealistic in expecting that they can always continue to find a buyer willing to pay the last highest price for a comparable home.
6.  Properties which are well located and have a popular design are likely to sell rapidly and at the highest possible price if they are initially realistically priced; this contrasts with properties which have to be reduced in price several times and take longer to sell.
7.  Fundamental demand for housing is based on employment and buyer’s confidence.
8.  Inventory in our local market usually follows seasonal patterns of being highest in late summer and lowest at the end of the calendar year.  Demand generally heats up in early Spring.
9.  Continuous Days on the Market (CDOM) is the only figure to look at to judge an absorption rate; DOM can be manipulated and give false information. CDOM data is generally available only to Realtors, so call Rick Bonetti or Moe Baniani for more information or analysis of your particular situation.
Of the 34 homes currently available in the Saratoga market in the $1.2-1.8 million range, 8 are new listings (less than 21 days), but a total 21 have had price reductions which indicates that the market is in transition. Inventory is not overly high for this time of the year.
Overall I would say this market is still strong, healthy and in transition into “normal” rather than “bad” for sellers. It is a good time to be a buyer and it may be a better time to be a seller now than in 2008. Time will tell.
 Rick Bonetti, Alain Pinel Realtors, Saratoga, CA 408-857-8800