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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Median home price rebounds to $682,500
March 18, 2008
Oh ye of little faith. I bring you good tidings:
[From Median home price rebounds to $682,500 - Santa Cruz Sentinel]
The median sales price for a single-family home in Santa Cruz County rebounded to $682,500 in February, up from $599,000 in January.
I can’t say that I’m surprised. That was a huge, whopping drop, all the way down to $599,000. I don’t have the numbers at the tip of my fingers, or tongue, or any worthwhile extremity for that matter, but I do believe that it was down from about $700,000 or so the month before that (December 2007). So we’re back up closer to $700K - but we’re still down, going down now…
Posted by SantaCruzBroker at 11:48pm
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February 2008 Santa Cruz Real Estate Sales
March 14, 2008
Oy vey. Ooof. What’s a good thing to say when you’ve just managed to crawl out from under a ton of bricks that got dropped on your head? I have been slammed. Slammed, I tell you! But you probably won’t find that nearly as interesting as I do. A lot’s been happening…
Like what’s up with that Eliot Spitzer guy, anyway? There’s a guy you think would know better. You’d think. It just goes to show, the world is just full of surprises.
One thing that’s going to come as a surprise to some folks is the February real estate sales data here in Santa Cruz county. The bottom line? Business is up. That’s good news, but if you think about it, you’d realize it couldn’t actually get much worse, and even with this improvement, we’re really just kind of skipping along the bottom. If you don’t already, I invite you to subscribe to my Santa Cruz real estate newsletter, which comes out once a month, or just cruise over to my page of Santa Cruz Real Estate Market Data, which is updated monthly.
In case you’re too lazy to do either, let me summarize it into a tasty new chunklet: Santa Cruz County home sales rose 9.1% in February, woo hoo! That’s compared to January, of course. Year over year, home sales are off 46.7% from February of 2006. And, of course, I don’t have the hard data handy to back this up, but I’m going to go out on a limb and say that I’d bet most Februarys have at least 9.1% more sales than the Januarys that precede them. So although this 9.1% sales increase is good news, mostly it’s good because if it were a decrease, that would have spelled some serious trouble.
That 9.1% is the sales volume - that is, the number of units (single-family residences - yes, your home is just a unit, like a Big Mac or a jar of Ponds Cold Cream) sold was 9.1% higher in February than in January. But if you already own a home, you may be more interested in knowing about home prices- is your home worth more, or less? Good news, good news - median home prices rose a rockin’ 11.9% from January! But don’t pop the champagne corks quite yet - prices are down, county-wide, 5.2% from February 2006.
Of course, all markets are local, so it doesn’t do a whole lot of good, really, to look at the county as a whole. But we’re Americans (a lot of us, anyway), and we like those tasty news chunklets, so probably you’d be satisfied with just knowing that one glib statistic. But if you demand more - if you are, say, a reader of The Economist - you might want to know, say, how Soquel is doing? The median price in Soquel is up a whopping 4.2%! Whereas if you’re in Watsonville, alas, the median price is down 28.7% from February in 2006. But that’s good, the rate of decline is slowing there - it was down about 40% for all of 2007.
I hope to get back to a more regular update schedule here on the blog - I need to learn to walk around the dangling net with the ton of bricks snared inside. Note to self.
Posted by SantaCruzBroker at 11:26am
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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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