Fortune magazine published their real estate market prediction for 2011. Experts are split right down the middle – Warren Buffett is saying that it will bounce back and some experts are saying it can drop by as much as 10%. If we look closer to home, 2010 has been a roller coaster year for real estate in the Santa Clara County. The market had a quick ramp up in the spring, buoyed by the optimism on the stimulus package and low interest rate. After the peak in June, the market gradually receded in fall and winter. So what’s in store for 2011?

Let’s divide the market into single family residence (SFR) and common interest condo and townhouses. Below are the median price and months of supply of all SFR in Santa Clara County in 2010.

Santa Clara County SFR Median Price

Santa Clara County SFR Months of Inventory

One lesson we should take away from 2010 is that the demand and supply of SFR are highly elastic. Price can swing from the trough in Jan 2010, $525K to rise 20% in Jun 2010, $630K and now $560K more than 11% off the summer price. And the months of supply (which is a good indicator to show the speed of market absorption with respect to houses being released into the market) peaked in August with 4.6 months and now fell to an all year low of 2.25 months in Dec, more than 50% Y/Y drop. That means there are a lot of high end first time home buyers planning to get in once they feel confident about the job and housing market. At the same time, existing homebuyers are monitoring. They are ready to sell their own homes and trade up if they see that they

can fetch a good price. But at this time, both kinds of buyers are sitting on the sideline.