Santa Cruz Real Estate Forecast 2012
January 12, 2012
It’s a new year, so it’s time to blow the dust off the ol’ blog and provide to all those who find it with an update on the Santa Cruz Real Estate market for 2012. But before we get too far into 2012, let’s discuss oh-so-briefly how we did in 2011. Perhaps it’s no surprise, but we ended 2011 with a median home price that’s down 7.2% to $485,000 as compared to the December 2010 median home price of $522,500. But that’s a lot better than the median home price in November – which hit bottom at $416,500, the lowest median price of the year. In fact, every month of 2011, single-family home prices were lower in 2011 than they were in the same month the previous year, with the exception of June (which was up 5.3% over the previous June).
It is pretty clear that 2011 was not a great year for real estate in Santa Cruz – but then, it wasn’t a great year anywhere, except for a few neighborhoods where a handful of newly minted dot-com millionaires are looking for digs.
Of course, the kind of price declines we saw in 2011 were mild compared to what we had seen in years past, when the market dropped with dizzying speed. Clearly, the rate of decrease has slowed down, which I think all will agree is a positive sign.
To check out all kinds of whizzy charts and graphs for our market, check out my Santa Cruz Real Estate Market Data page – you can slice the data many different ways.
What does all this mean for 2012? As anyone who knows me will tell you, I have been pretty bearish on the real estate market for the past several years. I remember back in 2008 and 2009 hearing so many Realtors and talking heads on television and in the print media predicting that a turn-around was coming, and that 2008 and 2009 – or for that matter, 2010 and 2011 – were great times to buy real estate. Turns out, that would only have been true if you didn’t mind buying a depreciating asset class – and who really wants to do that?
I’ve been saying for years – if you’re going to buy a home in Santa Cruz, buy with caution. I’ve been saying there is no rush to buy, the market is still in decline.
Now, though, I’m about to change my tune, just a little. I think that the evidence is mounting which would indicate that we are approaching the bottom of the housing bust. Why do I think this? I point my finger right at the economy. The economy finally seems to be gathering strength. My feeling – and that’s all I have for you, dear reader, just my gut feeling – is that there are going to be more buyers out there is year than last, and this will be enough to put the real estate market on firmer footing.
There is no doubt that there are many risks and unknowns out there – what happens if the economy weakens? Well, then, all bets are off. What if interest rates pick up? If the economy heats up, interest rates probably will rise, especially if Europe gets its act together – but interest rates will not likely rise by much, and will still remain low overall.
There’s an 800 pound gorilla in the closet, of course – that would be the dreaded shadow inventory. What happens if the banks decide to just say aww to heck with it and foreclose on everyone and flood the market? After much thought on the subject, I have come to the conclusion that this is simply not going to happen. There may be a small rise in foreclosures in 2012 as compared to 2011, but not enough to make much of a difference I don’t think. Nationwide, there are millions of loans in some stage of default still – and California is #3 in the nation in terms of foreclosures per capita (or household, rather). The situation we have today, is the one we’ll have tomorrow – and for the rest of this year, and probably the next, and quite likely for a number of years to come.
This “shadow inventory” will be released slowly, and it won’t all be REO (foreclosed, bank-owned real estate) – some will be REO, some will be short sales, and some people will have their loans modified such that homeowners can hang on to their homes but still be seriously underwater on the mortgage – a precarious situation and not something anyone should be too happy about.
Indeed, it is precisely the fact that there is so much distressed inventory out there that home prices will remain “low” for some time to come – there will be a large pool of sellers who can and will be selling below market value, if only just – and these sellers are going to be around, albeit in gradually diminishing numbers, for years to come.
What’s the bottom line? Bottom line – for buyers, is this: if you’re in the market to buy some property in Santa Cruz, or pretty much anywhere in California – I don’t think you need to worry about your investment going down in value (much). Conversely, I don’t think anyone should be buying property with the notion that the market will have a rapid rebound, and you’ll be able to turn the property over in a couple of years for a tidy profit and move up to something bigger and better. But I think that 2012 will prove to be a safe time to buy – finally, after many years.
What’s the bottom line for sellers? The good news here is that I believe you’ll finally see an end to the decline of your home’s value. The bad news is, I don’t see much improvement in the market overall for sellers – I think it is still going to be tough, there will still be lots of distressed-sales to compete against this year and for some years to come. I do not see price appreciation coming back in any significant way any time soon – so if you’ve been waiting for a market rebound, before planning to sell, I think you’ve still got a long wait in front of you. Selling today is probably going to get you the same for your property as it will 2-3 years from now.
Want to know what your Santa Cruz home is worth? Click here for a free, custom Santa Cruz Real Estate Home Price Report!
Clearly, there are many challenges out there for housing still. But at the risk of sounding like one of those Realtors who just loves to hype the housing market, let me just say – I think the worst is behind us. Going forward, I’m sure the road will be rocky and we’ll run into a few ups and downs along the way, but I bet when we look back at 2012, we’ll think of it as the year when things finally started getting better.
Tags: 2012 : forecast : santa cruz real estate
Posted by Administrator at 5:33pm
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Giving this Thanksgiving
November 22, 2011
It’s not just the economy that’s in the dumps. It seems that people’s spirits are really down, too. This year the summer was unusually cold and foggy, and our cherished Indian Summer went by in the blink of an eye. Our famous autumn season has likewise proven to be abnormally wet and cold, and it seems as though everything used to be better. Or is it just me?
As I write this, Thanksgiving is just a couple of days away. I have a lot to be thankful for – we welcomed our second child into the world back in September – Evan Armando, and he’s perfect. Our first son is now two and a half years old, and while at the moment he has a raging cold and could barely talk a couple of days ago, generally speaking he’s very happy and healthy, and this too is a blessing.
But times are tough, there’s no denying that. I am sure a lot of people are feeling more than a little pinch from the protracted downturn in the economy – and the crash in housing prices is, I am sure, doing nothing to help people feel secure and prosperous.
A lot of people, though, are feeling more than a pinch from the economy – and for many, housing prices are totally irrelevant, as they don’t even have a roof over their heads – they might consider themselves lucky if they have a dry spot under a bridge.
So in this holiday time, I remind you to please keep your heart and wallet open for those of us – a growing number of us – who are facing real hardship. When you see a collection going around for Second Harvest Food Bank, or Toys for Tots, when you see the Salvation Army bell ringers collecting money – be generous. There’s a lot of hunger out there, and anything you can give will help.
Happy Thanksgiving!
Tags: charity : thanksgiving
Posted by Administrator at 8:49am
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New Year, Old Challenges for Santa Cruz Real Estate
January 07, 2011
The cobwebs have grown thick on The Broker’s Record, my Santa Cruz Real Estate Blog! I’m so sorry – so much work to do, and so little time. As much as I would like to be blogging on SantaCruzHomeBroker.com, there just hasn’t been enough time in the day. As many of you know, my wife and I had a child back in April of ‘09 – Aiden Santiago – and when it comes to choosing between playing with him or blogging for the masses, well…Aiden wins. 
For the moment, though, Aiden is happily napping in the other room, and I have some free time and a burning desire to talk about the Santa Cruz Real Estate market.
The latest edition of my newsletter just came out, and this issue is as sobering as most have been over the past year: county-wide, the median home price declined 6.7% from December 2009 to December 2010. The number of homes sold in December was only 132; that’s up from November, but down 10.8% from the number of homes sold in December 2009. To make matters worse, inventory is up for the 7th month in a row – up 22.7% over a year ago.
Here we are at the beginning of 2011, and the question before us is, what will the housing market do this year? If you pay attention to the good folks at the California Association of Realtors (C.A.R.), you may know that back in October 2010 they issued a report. According to what C.A.R. was saying then, the median home price in California was supposed to climb a whopping 11.5% in 2010, and from there climb another 2% in 2011. Sales volume (number of homes sold) is likewise supposed to increase by 2% in 2011, again according to C.A.R.
The big question in my mind is, what are the underlying economic assumptions that people like the economists at C.A.R. are using to base their forecasts on? Leslie Appleton-Young, C.A.R.’s Chief Economist, said:
“A lean supply of available homes for sale will drive prices up at the low end, but larger inventories and limited, less attractive financing will cause continued softness at the high end.”
It’s interesting that she says there is a lean supply of homes. What she doesn’t say is that there is a lean supply of homes because so many people are waiting for the market to turn around before they sell – and many many other people who would like to sell cannot, because they are effectively trapped in their homes which are “underwater” (that is, they owe more on the homes than they are worth). The “less attractive financing” bit is funny, too – actually, jumbo money (loans over $729,500) isn’t so expensive – rates are overall similar to conforming rates. The difference is the size of the down payment that’s required – and of course, the need for borrowers to document their income. It is unlikely that we will soon return to the crazy-easy-money days when they lent out millions to people based just on their good credit and stated income – so what does that mean for the high-end of the market? Continued softness, ad infinitum?
Appleton-Young also went on to say:
“What is certain is that favorable home prices and historically low interest rates will continue to make owning a home in California attractive for those who are in a position to buy.”
So here we find another key component of the 2011 forecast: historically low interest rates. But have you checked interest rates out lately? Back in October when the forecast was made, rates were about 4.25% for a conventional 30-year fixed conforming loan (under $417,000). Today, they are closer to 5.0%. That means your $417,000 mortgage used to cost $2051.38 per month (principal/interest only). Now, you’re looking at $2238.54 per month for that same money – a jump in cost of about 9%.
Given today’s stricter lending practices, many lenders are being very conservative with their debt-to-income ratios. A $187.16 difference in payment might not seem like much to you – but it could mean the difference between the ability to finance a $417,000 house vs. a $382,500 house. In other words, if rates rise by 9%, it means, roughly, that a buyer will qualify for a maximum loan amount that’s about 8% less (in this example) than before the rate increase.
What does that mean? It means that in the face of weak employment and stagnant incomes, when interest rates rise (as they are apparently rising now), the prices people will be able to pay for housing are going to drop – and that’s going to bring house prices right on down too.
I really don’t see – especially given the interest rate trends – that home prices are going to be going up 2% this year. It’s possible, of course – but I think the greater likelihood is that prices will continue their gradual downward trend for the foreseeable future.
Now, I know what you’re saying – didn’t the unemployment rate just drop? Why, yes – HousingWire.com just reported today, for example, that the unemployment rate fell to 9.4%. The funny thing is, though, that just yesterday, HousingWire reported that jobless claims rose 4.6% last week. Now how’s that possible? It’s possible through the dark art of statistics, and while I could take a stab at explaining it, I’d rather not. Suffice it to say that while it may be true as the President says that there is a clear trend of lower unemployment – that trend could be easily reversed and, as the article I linked to notes, the drop in unemployment is largely due to the fact that 206,000 more people have given up looking for work and are no longer counted as unemployed.
I’ve sipped the last of my Earl Grey and I’m looking down at what’s left in my cup, and I’m trying to make sense of what I see there. I’m having difficulty, I think, because I really have no idea how to read tea leaves. But I can do a fair job at reading headlines written in English – I read them pretty much every day. Actually, I usually read a bit down further below the headline, just to see if there’s anything more to the story that might be gleaned by reading in some detail.
As far as I can tell, there’s nothing but great uncertainty when it comes to the national housing market – and the same goes for the Santa Cruz market as well. It could be that the “recovery” starts getting some teeth, that people start finding work and those who do have jobs start seeing some extra money in their pay checks. That’s definitely a possibility – I think even the most ferocious bears will tell you that it could happen.
For many, though, the downside risks are too great and too real to ignore. Absent any signs of a genuine, down-deep recovery in jobs and wage growth – especially in the face of rising interest rates – it is really easy to surmise that the market still has some ways to fall yet, and that only fools will rush in to buy today.
Well color me a fool, then, with that big old broad brush of yours! I for one am delighted to say that after waiting and searching for a considerable while, I’m in escrow to buy a house, back in my beloved Aptos. I sold my house in Seacliff (Aptos) back in 2007 (good timing, eh?) and have been sitting on the sidelines ever since, waiting for just the right replacement home to come up.
And now it has – escrow should be closing in a couple of weeks (knock on wood). I know what you’re thinking – do I have rocks in my head? Don’t I know that prices will probably be going down more still? Am I CRAZY?
That’s perfectly debatable, of course. But here’s the scoop: we found a house we love. It’s in a location which we are also very happy with. The house itself is beautiful and in great shape. We’re putting 20% down, and our after-tax payment will be around $2,000 a month. Our pre-tax payment will be considerably higher than that, of course – so I for one really hope they don’t pull the plug on the mortgage interest tax deduction – which could, of course, have a really deleterious effect on home prices depending on how it is implemented.
That $2,000 a month is an after-tax payment I can live with – for years to come. I waited and searched for so long because I wanted to buy a house I knew I could be happy with – at a price I could afford – for ten years or more. So who cares if the value drops another 5-10% over the next year or two? Not me, because I don’t plan on going anywhere anytime soon.
Of course, my plans could change – anything can happen, and I might end up with the short end of the stick, as so many folks who bought in recent years have painfully discovered. But we ought not make too many of life’s choices based on fear of what might happen if things go wrong, as they very well might. For me, I’d rather make choices based on what I can reasonably expect to make work through my own planning, work, and diligence.
Hat’s off to nut-jobs like me who plan to buy this year. And a big high-five-right-on to those of you who continue to sit on the sidelines and plan to wait it out for calmer seas and blue skies. Whatever your choice, whatever 2011 should bring for you, me, and all the rest of us on this spinning blue marble – I wish you all the best in the coming year.
And if you do decide to buy or sell a house – please don’t hesitate to call. I’ll be there, in Aptos, standing by.
Posted by SantaCruzBroker at 5:35pm
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The CalSTRS Program in Santa Cruz County
April 02, 2010
Hey, what’s a year between friends? It’s been just about that long since my last blog entry. It’s been a crazy year. Did you catch that article in the Santa Cruz Sentinel a couple of weeks ago? If you read the fine print you’ll see what’s kept me busy.
But that’s not what I’m back (finally) to talk about today. I want to let you know that we’re cranking up a SantaCruzHomeBroker YouTube Channel. OK so the video we’re cranking out isn’t up to national network broadcast quality, but that’s some of the appeal. But it is cool what you can do with a Canon Vixia HF11 and iMovie 09.
So the most recent video we shot was with Peter Boutell of Santa Cruz Home Finance. Peter stopped by at an Open House I was holding, and wanted to talk up the CalSTRS Loan Program. It’s a great program for teachers, whereby teachers need only a 3% down payment and can get a 17% “silent second” mortgage with no payments on this loan for 5 years. It sounds like a great option for teachers in Santa Cruz county who are looking to get a little help on their path to home ownership.
So check out the video and let me know what you think!
Posted by SantaCruzBroker at 10:04am
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Santa Cruz Foreclosure-Buying Seminar
June 07, 2009
I’m going to let you in on a little secret. It’s not something I talk about much on this blog – if I did, I guess it wouldn’t be much of a secret, would it? OK, deep breath – here it is, my confession.
Most of my business these days, over 90% of it, comes from listing and selling bank-owned “REO” foreclosure properties. I do work with a few buyers, because I enjoy working with them and it gets me out to see a lot of the inventory I otherwise wouldn’t see, and helps me stay up on the market and to be a better Realtor overall.
I work with a variety of banks and “REO outsources” (asset management companies) from across the nation, and I list and sell their properties in Santa Clara, Santa Cruz, and Monterey Counties – from San Jose to Salinas, from Boulder Creek to Santa Cruz, Watsonville, Pacific Grove, and everywhere in between. I’ve been doing this for about two years by now, and it’s been an interesting ride to say the least.
Along the way, I have learned quite a few things about buying bank-owned REO (”real estate owned”) foreclosure properties. At this point, these properties represent a very large percentage of sales in Santa Cruz county. If you are looking to buy a house in Santa Cruz, there is a very good chance you’ll be buying a foreclosure – especially if you are looking for homes under, say, $500,000 – which many (most?) of you are.
Last year at the Santa Cruz County Housing Exposition, I did a presentation on Opportunities in the Foreclosure Market. I video taped that presentation, and it is available on my web site. I had a great time doing the presentation, and as I recall, it was packed – standing room only. Several people told me it was the best presentation they saw at the expo.
This year, it seems there was no housing expo – but I think there is now perhaps more interest than ever in buying foreclosure real estate. And so, I’ve decided it’s time for another presentation on the subject.
I’ve reserved a room at a central, downtown Santa Cruz facility, and I’ll be giving a free presentation, limited to 30 attendees. The presentation will be different than the one I gave at the expo last year – this one will focus exclusively on buying bank-owned “REO” foreclosures. I won’t talk (much) about short sales, for example – this will have a solid focus on the process of buying a foreclosure property on the “retail” market, and is aimed at the average buyer just looking to buy an affordable home here in Santa Cruz.
Sound good? If you are interested, click here to sign up for the seminar. I hope to see you there!
Tags: foreclosure : real estate : REO : seminar
Posted by SantaCruzBroker at 11:39am
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