California Median Price down 29% in March, down 20.9% in Santa Cruz
April 30, 2008
This news is a few days old, so maybe you heard about it. Somehow, I missed this one, I’m a few days behind in reading the real estate news. But check out this news from C.A.R., the California Association of Realtors:
[From the California Association of Realtors - median home price fell 29 percent in March ]
Home sales decreased 24.5 percent in March in California compared with the same period a year ago, while the median price of an existing home fell 29 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.
It’s a pretty interesting article, with lots of numbers to pick apart. Some areas are actually seeing median price increases - they provide a separate link with March 2008 home prices for various California cities and counties. According to C.A.R., home prices are down in Santa Cruz county by 20.9% And I know what you’re thinking - blame Watsonville. My broker did, at our weekly office meeting. The C.A.R. data says otherwise - the only city it breaks out in Santa Cruz county is the City of Santa Cruz, where it reports that median home prices have dropped 17.9% since March 2007.
I prefer to look at this as a good-news, bad-news kind of thing. The bad news is that if you need or want to sell your house, C.A.R. has just provided ample proof (again) of what you might have maybe thought: now is not the time to sell your home. Also, you might want to make sure your home equity line is still available, because your lender may get wise to the fact that you probably have a lot less home equity than you thought you did.
The good news, of course, is that lower prices creates a lot of buying opportunity that simply hasn’t been around for years and years. Many people who have been shut out of the market or who have been sitting on the sidelines are now seeing that their day may come. The Center for the Continuing Study of the California Economy put out a report in February 2008 about rising affordability of California homes. According to that report, we are still far away from being an “affordable” place to live, but that’s the price of Paradise.
Posted by SantaCruzBroker at 8:29am
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Is it safe to buy a house in Santa Cruz yet?
March 26, 2008
I get questions like that all the time. Are we near the bottom? Have we hit bottom? How low will prices go? When will the market turn around? Good questions. Where to go for answers?
There’s just so much contradictory information, isn’t there? For example, our good, reliable, always-faithful friends at the California Association of Realtors (C.A.R.) report:
C.A.R. reports sales decrease 28.5 percent, median home price falls 26.2 percent in February
LOS ANGELES (March 24) – Home sales decreased 28.5 percent in February in California compared with the same period a year ago, while the median price of an existing home fell 26.2 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.
But then we have this little tidbit which I saw splashed on the front pages of various newspapers the other day:
U.S. Economy: Existing-Home Sales Rise, Prices Fall
March 24 (Bloomberg) — Sales of existing homes in the U.S. unexpectedly rose in February as prices fell by the most in four decades.
There are other data points we can look at - for example, check out this entry from the Countrywide Foreclosures Blog:
14,413 REO’s Offered For Sale on Countrywide Financial’s Website
Total REO Asking Price: $2,976,805,967
(As of March 24, 2008)
Sounds like a lot of REOs - but look at the chart - the inventory is going down.
If you’re ever in need of a good a laugh, I recommend stopping by the Calculated Risk blog. It’s always a riot. They’ve got a bit of input on the New Home Sales numbers as reported by the Census:
[From More on New Home Sales - Calculated Risk]
There are actually two pieces of good news in the report. First, inventory levels (even accounting for cancellations) are clearly falling….The second piece of good news is revisions. During periods of rapidly declining sales, the Census Bureau routinely overestimates sales in the initial report - and then revises down sales over the next few months. In this report, sales were revised up slightly for November (from 630K to 631K), December (605K to 611K) and January (588K to 601K). This is actually a positive sign that New Home sales might be nearing a bottom.
So, what, exactly, does it all mean? The honest answer is, nobody knows. I’ll tell you what I think, though. I think that, barring any major, protracted recession, we are at or near the bottom of the market. I think Watsonville and the south county area is at the bottom and may already be heading up a bit - North Monterey county, too. I think that in the rest of Santa Cruz county, prices may have a bit to fall yet, but not much.
In short, I do think it is now “safe” to buy real estate in Santa Cruz county. We may not be at the bottom of the market in every nook and cranny of our diverse area, but I believe we’re close. My feeling is that anyone who buys today will not lose their shirt (and hat, and coat, and…), as many people did who bought in 2005 and 2006. I think worse case, if you buy today, you might lose a sock. Maybe a shoe, too. However, barring any calamity in the economy, I think now is a great time to buy in Santa Cruz. Mark my words. Unless I’m proven wrong, of course, in which case, forget everything I just said. 
Posted by SantaCruzBroker at 6:07pm
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There’s No Such Thing as Market Price
March 22, 2008
There. I’ve said it. I’ve blown the lid off one of Real Estate’s greatest secrets. The “Market Value” or “Market Price” of a home is purely fantasy. Let me explain.
There are many values attached to any piece of property. If it’s on the market for sale, there is the List Price. But, that’s just the asking price. When people are looking to buy property and searching on the internet, I encourage them to search a bit, maybe a good bit, over the their budgeted price, because the list price is not necessarily what the home is going to sell for - often, homes sell for far less than list price.
After the list price, there’s the assessed value. People are always telling me, “Well, the assessed value of the home is only $X, so I don’t want to pay anything more than that.” The assessed value is almost meaningless, thanks to California’s Proposition 13. That’s the figure the government uses to calculate property taxes. It’s no more of an indicator of a home’s value than Zillow is.
Next, let’s say that you’re going to buy a piece of property, and your bank, naturally, requires that you get an appraisal done on it. So the licensed appraiser comes out to the proeprty, does his (or her) thing, and comes up with a value - the appraisal value. Now, you’d think this would be a pretty good indication of value. I’d say it is, at most, a fair indication of value, because if you have two, three, or four appraisers come out, you can easily have two, three, or four different appraised values. That, and there’s this strange thing that happens - the home almost always appraises for just a little tiny teeny bit over the contract price. Miraculous. Now, why is that? It’s because if an appraiser consistently brings in values that are lower than the contract price, who is going to hire that appraiser? Nobody.
Having said that, I’m in escrow on a property where the appraiser just valued it about 9% more than the contract price. That’s pretty wild. And that’s cool. I’m not saying that the house is actually worth 9% more than we’re paying for it - my feeling is it’s worth about 2-3% more than we’re paying for it, but it’s nifty to have a high appraised value, it makes for good talk when drinkin’ beers with your buddies, you can tell them what a steal you got on the place.
After appraised value, there’s the sale price. That’s what the house sells for. Actually, this is a very good indication of market value. The best comparable sale for any property is…itself, because that shows what a ready, willing, and able buyer was willing to pay for a property. In fact, that’s one of those truism-cliches that we bat about in the ol’ real estate office. The buyer sets the price of the property, not the seller. Once the buyer buys that house, he establishes market value for that property.
Now I’m coming to the crux of the matter. These days, there’s such a fever for buying property below market price. After all, why would anyone want to pay market price is a buyer’s market, one in which property prices are declining? Surely you’d want to buy under market price, to provide yourself some protection against declining values? Of course you would! But how can you know what is the market price? There’s the rub.
I’d like to point out what happened a little while ago at 208 Elk Street in Santa Cruz. It was a foreclosure home. It was listed by an out-of-town agent for $539,000. Somehow, someway, someone was able to con the bank into selling it for $500,000. The dirt is probably worth $400,000. It’s a 1500 square foot house. The improvements had to be worth $225,000 - which to me, gives it a value of around $625,000. But the banks, they like to sell the property quick, sometimes to the point where they are practically giving it away. Anyway, some dumb asset manager somewhere let that house go for $500,000.
Was that market price? Well, if you listened to the Realtors ’round the market cooler and all their banter about the buyer setting the price and being the best indicator of market value, blah blah, then you’d be led to believe that’s all the house is worth. Don’t believe it. That house is now back on the market, just right after it closed escrow for $500,000 - only now it’s $599,000. That’s much closer to the $625,000 that I figure it’s worth. So, it’s still selling for below market price - only now, this time, when it sells for $599,000 (or whatever) - will it now set the correct market price?
Yep. It’s a tricky business. When you’re listening to the Real Estate Gurus and buying books about buying 40% under market price, be wary. In my experience, it’s impossible to buy here in Santa Cruz for 40% under market price, whatever that is. That’s because there just aren’t that many stupid people around, unfortunately. Maybe we could get the Bush administration to move to Santa Cruz in January and then we’d all be able to scoop up some deals, I don’t know. But 40% under market value? That would mean 208 Elk Street could have been bought for $375K. Nobody’s that stupid. Well, almost nobody (they’ll greet us with flowers and candy, remember?).
Now, you may, once in a while, be able to buy a property for 40% below it’s highest and best value. That’s another thing. That’s where you buy a property where, in its present condition, it is worth 40% less than it could be, if you poured tons of time, money, and/or sweat equity into the property. That’s possible. But that’s another thing entirely. That’s buying a property, adding value such that it becomes more than the sum of its parts, and selling the profit you’ve just created. That’s a neat trick, too, and if you can do it, well, we all should be reading your blog.
OK, that’s it for now. I gotta go. I’m taking the day off today, after working a grueling 100 hours last week. Have a good weekend y’all!
Posted by SantaCruzBroker at 8:34am
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Santa Cruz and Mega Region Real Estate
March 07, 2008
My brother never tires of sending me links to articles about why real estate is such a rip-off, that it’s much smarter to rent and invest in the stock market. But today, he sent me a link to an article that talks about why it is that Bay Area real estate prices (and, by extension, Santa Cruz real estate prices) defy the normal rules that most other markets play by
[From Think globally, live locally]
…that despite all the predictions about virtual offices and globalization rendering geography irrelevant, where you live still largely determines your destiny. Though theoretically we should be able to work just as efficiently from, as he puts it, “a ski chalet in Aspen or a house in Provence as an office in Chicago,” the facts suggest that the rise of a handful of global megaregions — centers of both creative innovation and economic productivity — has made place more central to people’s lives than ever.
Yeah, I know - Santa Cruz isn’t a mega-region. It’s a funky little quasi-hippie beach town with a behemoth of a University that sucks up a lot of resources and clogs our rental market with students who abuse the property and cause no end of hassle for the neighbors what with their endless parties and pot smoking and Che Guevara posters clearly visible through the windows.
But, the reality is, we are right on the outskirts of a mega region. Silicon Valley. We are where a lot of folks who live in the valley would like to live, were it not for Highway 17. There is no doubt that Santa Cruz is an extremity of this mega-region known as the San Francisco Bay Area/Silicon Valley - and I invite you to consider the possibility that this is not a bad thing. It is, after all, one of the great bastions of hope for the US Economy, an international success story with few rivals in the world.
Real Estate is a long term investment. Forget about a quick flip, unless it’s something you really understand and are sure you are buying at the right price to do it successfully and profitably. But if you are in it for the long term, I still believe (regardless of what my brother says) that it’s a smart thing to hold real estate in Santa Cruz. Or even San Jose.
Posted by SantaCruzBroker at 5:42pm
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It’s a Swing Thing
February 18, 2008
Ahh. It’s Monday, and it’s a holiday. It’s already 8:49 AM, and my phone hasn’t rung once so far today. I’m sipping a cup o’ Joe, reading my blogs, while I ease into my day. I stumbled upon a cool animated graphic, courtesy of CNN Money/Fortune, which I think many of you will find of interest:
It’s a Flash animation, and there is no accompanying article, so it makes for an easy read. It’s interesting to see how most of the steep market declines we’ve seen over the past 50 years have been relatively short. It’s also interesting to see how prices just keep rising over the long term.
Of course, the debate is still open as to if Real Estate is a better or worse investment than the stock market - how much of the price rise shown in the chart is due to inflation, etc.? I’ll leave that to you and your financial planner to discuss, but if the answer comes out that buying a house is an OK thing to do in a down market, with an upside looming around the corner, I’ll be here.
Posted by SantaCruzBroker at 10:00am
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