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Silicon Valley: Why There's No Mortgage Crunch Here

Monday, 20 Aug 2007 | 2:00 PM ET
AP

The stories seem so bleak: The sub-prime mortgage mess threatening to torpedo the global economy and plunge this nation into recession. Yet here in Silicon Valley, something weird is going on.

Sure, sales are plunging, but home prices are actually climbing! The experts call it the Silicon Valley Real Estate Paradox. The most recent figures from DataQuick show that sales dropped 11% in July; but the media price of a single family home climbed 7.4% to a record $805,000.

It's bizarre until you start examining the strange quirks of this particular region, something home-seller Doug Darling had to do when he and his sister inherited their parents' home in stylish Los Gatos. "We listed it, based on the realtor recommendation, at $1.69 million. And the final offer actually came in at $1.875 million, which was a very nice amount over what we had expected," he tells us.

Nine offers, and the house sold in five days. You'd think he'd be down in the dumps having to unload a home in a market like this one, which so much emotion tied into the place. He's still having difficulty letting go, but a sales experience like this one should help a little bit.

Why is this happening?

Thanks to home sales at the higher-end, which continue brisk, the Silicon Valley real estate market is alive and well. At least pockets of it are, and that's skewing the entire industry. Dot com and venture capital money continue to flow around here, and these buyers searching around for homes well over a $1 million haven't been bitten by the sub-prime bug.

"In this particular case (of Doug Darling's home), several offers were just all cash, so there was actually no lender involved at all," says Gino Blefari, owner of Silicon Valley's largest real estate firm Intero. "With your typical buyer buying at this high-end, he really does not have an issue when it comes to getting a mortgage."

And with sales at the low-end plunging--down 40% in some neighborhoods with price-drops to match--all the action seems to be happening at the high end, giving the impression that the market is doing just fine overall. Key neighborhoods continue to see healthy activity: Cupertino, Los Altos Hills, Saratoga, Los Gatos. But lower-end neighborhoods where sub-prime mortgages helped prop up prices are suffering now.

It's a strange market, what some call a kind of air-pocket in a real estate market that seems to be collapsing in so many other regions around the country. Nonetheless, realtors, and home-sellers are thankful there's any action at all, let alone all this activity at the higher priced segment of the market.

"We anticipated getting a little bit more, and we got a lot," says Darling. "So we're happy."

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