The DeLeon Insight - May 2014

THE DELEON INSIGHT

KEN DELEON FORECASTS APPRECIATION TRENDS IN SILICON VALLEY (SEE PAGE 3)

MAY 2014 EDITION

REAL ESTATE MARKET TRENDS

Sales Price (Average) - Single Family Residential $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000

Jan 2014 - April 2014

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Average sale prices for single family residential homes from January 2014 through April 2014 increased when compared to average sales price during the same period in 2013.* Average sale prices for single family residential homes from January Price/Sqft (Average) - Single Family Residential 2014 through April 2014 increased when compared to average sales $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200

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Average price per square foot for single family residential homes was higher in neighborhoods along the Peninsula (except Woodside) from January through April 2014 compared to that same time period in 2013.* 1

*Data gathered from the Multiple Listing Service on April 24, 2014

REAL ESTATE HOME IMPROVEMENT

Pick Your Pipe for Plumbing

By Cameron Perry Field Coordinator

Before owners put the wrench to a leaking pipe or decide to replace portions of a pipe itself - STOP! Was the house built before or in the 1960’s?

Are there galvanized steel pipes, copper pipes, clay pipes, or cast-iron pipes? Before they decide to take on the job themselves, knowing the kind of pipes the home has and selecting the right replacement pipes could save headaches, money, and time.

Galvanized Steel Most of the piping used before the 1960’s was galvanized steel, the bane of plumbing for older homes. Over time galvanized steel pipes plug, corrode, and need replacement. Plumbing contractors might suggest replacing the entire piping system, but this can be costly. Owners looking for a less expensive alternative should, at a minimum, consider fixing any pipes made of galvanized steel. Once this decision is made, owners must then choose a suitable material for the replacement pipes. Generally, copper or plastic piping is best.

Copper Pipes When replacing pipes, it is important to comply with city building codes.

Palo Alto, for example, accepts K or L-type copper pipes because they are

self-sanitizing, ensuring that no toxic growth will accumulate in the pipes.

K-type copper, however, is preferred due to its strength and thickness.

In addition to its self-sanitizing properties, copper piping creates a biostatic atmosphere, thereby impeding bacterial growth inside the pipes (a very important health concern). Aside from copper, Palo Alto also permits other types of replacement pipes such as: PE (Black Poly), CPVC (chlorinated polyvinyl chloride), and PVC. Clay and Cast-Iron Pipes In older homes, sewer lines with clay or cast-iron pipes are often found.

Clay pipes are generally vulnerable to being crushed or facing root intrusion while case-iron pipes may corrode and deteriorate. When repairing a sewer system, it is extremely helpful to use a video camera, such as a “sewer scope”, during inspection.

The “sewer scope” can help detect a lot of relevant information such as:

tree root intrusions, separated pipes, offset pipe joints, or broken pipes.

Interior Copper Pipes & Plastic Pipes For the interior of the home, many owners have chosen to replace galvanized plumbing with copper plumbing. Typically, for a 1,500 square foot home, this type of replacement costs approximately $8,000 to $10,000.

Pex piping, a type of plastic piping, is a less expensive alternative and usually costs around $4,000 to $6,000 due to lower material/labor costs. Although some environmental groups worry about unknown health risks associated with plastic water supply lines, Pex piping has been used widely throughout the United States.

No matter the type of pipes or their age, well-maintained pipes will always last longer! Pipe replacement may be a tricky and complicated process, therefore, it is always best to consult a qualified specialist.

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REAL ESTATE LOCAL UPDATE

The Push and Pull of Pricing Trends and Forecasts for Silicon Valley Appreciation

By Ken DeLeon Founder of DeLeon Realty

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hile a rising tide raises all boats, the wave of appreciation that is hitting Silicon Valley housing is uneven and has ebbs and flows based on consistent trends in the marketplace. Overall, most prime cities in Silicon Valley have seen double digit growth in both 2013 and in the first quarter of 2014. However, this appreciation is not uniform, and the cities that saw the most appreciation in 2013 are rising at a lower level as other housing markets race to catch up.

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...Most prime cities in Silicon Valley have seen double digit growth in both 2013 and in the first quarter of 2014.

Generally, Palo Alto is the epicenter and leading indicator of local housing appreciation. This was the case in both 2012 and 2013, with Palo Alto leading the pack of local cities with its average

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price rising by approximately 17% annually - higher than any of the other surrounding cities. In the past, the trend in Silicon Valley is that one area or city, such as Palo Alto, appreciates first. This first wave of appreciation then pushes buyers to nearby cities causing Palo Alto to plateau. Then, when these nearby cities rise close to parity, buyers are pulled back into Palo Alto, which will then experience appreciation again, although less rapidly than other locales.

With Palo Alto appreciation nearly double that of adjacent cities in recent years, buyers realized that greater values and opportunities could be found elsewhere. In the recent Forbes article, Ken DeLeon, Top Silicon Valley Sales Agent: Why Chinese Buyers Love Palo Alto, I illustrated this pricing disparity by showing that in 2006, the average home sales price in Palo Alto was only 3.34% higher than Menlo Park, whereas in late 2013, that pricing gap was nearly 39 percent!

While the pricing discrepancy is more

extreme than normal, the trend of Palo Alto becoming relatively overpriced, and then buyers focusing upon other cities frequently occurs. This has been the case in the first quarter of 2014.

So far, the stars of the first quarter of 2014 have been the cities that did not shine as brightly in 2013.

For instance, comparing Menlo Park’s average sales price of 2014 relative to 2013 shows a jump of 28.4 percent! Los Altos, which has benefited from its revitalized downtown and rapidly improving high school test scores, saw a solid gain of 16.7% and is one of the strongest markets, with homes within walking distance to downtown jumping the most. As an extreme example, a ranch style home near downtown that was priced below $1.9 million jumped nearly 60% to $3 million.

Another example of push-pull appreciation has been that lower end homes have jumped so much in the

REAL ESTATE LOCAL UPDATE

past two years that more buyers are pushed towards buying homes over $3 million, where there are more relative bargains as you begin to exit the feeding frenzy of double digit offers. This push caused both Los Altos Hills and Atherton to see the best appreciation of any market, with average sales prices more than 35% higher than they were in the first quarter of 2013.

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... a ranch style home near downtown that was priced below $1.9 million jumped nearly 60% to $3 million.

With the jumps experienced

by Menlo Park and Los Altos for mid-range homes and Los Altos Hills and Atherton for upper-end homes, I forecast that buyers will be pulled back to Palo Alto and lower-end homes.

Generally, appreciation in Silicon Valley is front-loaded toward the beginning of the year, so while I anticipate continued appreciation, the rate of double digit appreciation should slow down. The long-term trend of lower inventory shows signs of continuing in 2014, pushing prices higher as supply declines. Overall, 2014 appears to be another strong year of double digit appreciation for the Silicon Valley housing market.

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LEGAL PROPERTY LAW

All is Fair in Love and Community Property

By Kevin Chiao Palo Alto Specialist

Marriage and love generally form a simple equation – two people meet, they fall in love, and then they wed.

However, for married couples residing in California, before reaching “happily ever after,” each spouse should consider California’s law on property characterization. While many are aware that California is a community property state, what exactly does that mean?

Essentially, California treats all assets and debts acquired during marriage by a married couple as belonging to both spouses.

Separate property is typically property a spouse owned before marriage. Some property, though acquired during marriage, can still be categorized as separate property, such as gifts or inheritances. At divorce, these properties belong entirely to the spouse who acquired the property so long as the separate assets were not comingled with community property.

Community property, on the other hand, is property acquired by a married person during marriage while living in the state. Usually, income earned during marriage or property purchased from a community bank account is considered as community property.

At divorce, community property is typically divided equally. Even if the community property is titled in the name of only one spouse, at divorce, both spouses will likely get a share of the property. In addition, there are federal tax implications attached to

community property. For example, the community property receives a step-up or step-down in basis to the fair market value at the date of death, whereas the surviving spouse’s separate property does not. This step-up in value can save a lot in taxes on capital gains as the property’s value is stepped up to fair maket value at the date of death.

Lastly, quasi-community property is property acquired during marriage in a non-community property state (e.g., New York) that would have been community property if it had been acquired in a community property state (e.g., California). In California, quasi-community property is treated as community property when one spouse dies or if the couple divorces.

Love may be blind, but when it comes to property, you don’t have to be.

What kind of house is that?

Match the picture to the name of the style.

Ranch

Modern

Victorian

Knowing about community property is important for a married couple because there are legal and tax implications attached. Typically, property acquired during marriage fits into one of three categories: separate property, community property, or quasicommunity property.

Illustrations by Theresa Choi

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DESIGN HOME PREPARATION

A Bright Idea in the Sky

By Liling Lampell Interior Designer ASID

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ighting in a house is important when buying a home. In the current competitive seller’s market, buyers can’t always find the ideal home with the lighting they dream of. Luckily, with today’s technology, homeowners are able to bring in

more light via different types of renovations. Adding skylights is the most common and easy way to shower your rooms with natural light.

New types of glazing and accessories, such as built-in sunshades, minimize heat problems. Factory-supplied flashing also dramatically reduces the risk of leaks. Venting skylights allow air to flow in and out and can also serve as an emergency exit. Forget to close a skylight? Some skylights close automatically at the first drop of rain.

As for the orientations, east-facing skylights bring in the morning glory, west-facing ones invite afternoon

warmth, those that face north distribute even light while southfacing skylights generate the most heat. Therefore, a built-in shade is recommended for south facing orientations. In some places where you cannot install a conventional skylight, a tubular skylight is a great alternative. Electrical bulbs and LED lights can also be installed in the tube to serve as a light fixture at night. Next time, when you are out hunting for a house, no need to be intimidated by a dark room. Think bright! Let the sky bring in fresh air, abundant light, and most of all, joy to your home.

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PRSRT STD ECRWSS U.S. POSTAGE PAID EDDM RETAIL

DeLeon Realty 2600 El Camino Real, Suite 110 Palo Alto, CA 94306

LOCAL POSTAL CUSTOMER

Please Join DeLeon Realty for our June Seminar TAX ISSUES RELATING TO REAL PROPERTY Please join DeLeon Realty at our June Seminar.

Gain insight into tax issues relating to real estate from Michael Repka, the Managing Broker and General Counsel of DeLeon Realty. Also hear the latest market updates from Ken DeLeon, the most successful real estate broker in Silicon Valley.

THURSDAY June 12, 2014 6:00pm - 8:00pm

Where: Palo Alto Hills Golf & Country Club, Grand Ballroom 3000 Alexis Drive, Palo Alto

To RSVP, please contact: CalBRE# 01903224

Ting Conway 650.543.8588