Santa Cruz at Market Bottom? Some Say Yes, I Say No
March 18, 2009
I popped in my office this evening to pick up a commission check, and as I passed by a colleague’s desk, I happened to notice a photocopy of the front page of today’s Santa Cruz sentinel sitting there. I had actually seen the headline news flitter across my screen this morning, thanks to Twitter and Growl (very cool). However, I didn’t have a chance to read the article, and I didn’t see the sub-headline: “We are at Bottom says one Watsonville Realtor.” Or some such eye-bait.
One thing that’s interesting is that the median price the Santa Cruz Sentinel used, $380,000, is quite a bit lower than my own figure of $429,000. $380K is pretty low for these parts, but an almost $50K discrepancy between my numbers and those of Gary Gangnes (an oft-quoted source of local market data) is notable. But I won’t quibble with Gary, I think he’s been tallying the numbers since I was learning to ride a tricycle.
The exact median price for sales in February ‘09 doesn’t interest me so much – the fact that it’s a lot lower than February ‘08 or even January of ‘09 is very interesting – the fact that we’re heading, still, in a downward direction seems inescapable.
However, one Realtor at least (and one who should know – the president of the Watsonville Association of Realtors) is ready to escape this, by proclaiming that in the south county, at least, “We’ve hit our bottom … in single family.”
She brings up a few vague anecdotes, like she has more buyers than properties right now. And that’s the criteria for knowing when we are at the bottom, when one Realtor has more buyers than properties? That’s not real hard thinking. She also cites how we’re seeing multiple offers. Fact is, we have been seeing multiple offers for well over a year now on these bargain-basement properties in Watsonville – and pretty much anywhere in California where bank-owned foreclosures are sold several percent cheaper than competing properties – these properties attract multiple offers and sell quickly. It’s not a new phenomenon, it’s been going on at least 18 months I’d say.
The fact is, I’ve got a number of listings in Watsonville myself. Do I have multiple offers on all of them? Hardly. Certainly, sometimes there’s a crazy feeding frenzy of 10+ offers on these properties. I listed a new home last night in San Jose, and I’ve had 20 phone calls on it today at least, I’m sure there will be multiple offers on that one. Does that mean the market has stabilized, that we have hit bottom?
No, it means that this is the cheapest home to sell in that neighborhood in that condition in many years, and there are buyers for it, lots of them. But when this home sells, the next one to come on the market will come on at a lower price, or at least, it’ll almost surely sell at a lower price. That’s because we’re in a declining market.
Here’s an anecdote that tells me we we are not at bottom. I have a listing at 90 Arista Lane in Watsonville, it’s 14 years old, 3 bedrooms, 1.5 bathrooms, on a quiet dead-end street in the center of town, close to everything. All the homes on Arista Lane and Arista Court are pretty much identical. My own listing is not in bad shape at all, except it does have some unusual choices for interior paint color.
The house across the street from this, 87 Arista Lane, is what you’d call a “model match.” Pretty much – I didn’t go into 87 Arista when it was on the market, but from what I can tell on the MLS from the pictures, the choice of paint colors and level of amenities in this home was about on par with my listing. 87 Arista was listed in October of 2008 for $299,900, and in November of ‘08 it went down to $279,900 before closing escrow on January 2 of ‘09 for $260,000. There was no mention made of the seller having paid the buyer any closing cost credits – but not all Realtors mention the closing cost credits in the private comments when marking the property sold (though they should).
And then, a scant two months later, my own listing comes on with an asking price of $250,000 – that’s 3.8% less than the sale price of a very very comparable property which closed just two months earlier…and I’m on the market eight days, and I’m standing in a field of chirping crickets. Not an offer, and only a handful of phone calls. Where are all these buyers, loan approval letters in hand, waiting to buy my listing that could possibly be had for maybe 6-7% less than this comp which closed just a tad over two months ago?
Let’s say though that 90 Arista Lane does get a full price offer (very unlikely if there’s only one buyer making an offer), and it sells for $250,000. By the time it closes escrow, it’d be about 3 months past the sale of the last comp, meaning the market will have dropped about 1.26% per month (for this particular type of home). That’s an annual rate of 30% drop. And, strangely enough – the year-over-year price decline (February 2008 to February 2009) in Watsonville was…30%. But mind you, we are now looking ahead to March, so what we’re seeing is…the market is still headed down, at about the same rate as it’s been going down for the last year.
And another thing! Before I close out this little missive, I’d like to take exception to another thing in the Sentinel article, that homes are being sold “at discounts of 30 to 50 percent.” Nothing could be farther from the truth. The truth is, these homes are being sold at a loss of 30 to 60 (yes – sixty) percent from their all-time peak values. In fact, these homes which receive multiple offers typically end up selling for more than asking price – so does that mean that anyone who pays more than list price is paying more than the property is worth?
No, it doesn’t mean that at all. It means that the list price was below market value, and the market recognized that and enough offers were generated to bump the price back up to market value – or perhaps a bit above market value, or perhaps a good bit below. But not too far below – if in fact you were able to buy a home for 10% below true market value, you could not do a thing to the property, then turn around and sell that property to someone else the next day for 10% more than you paid for it. I can name few examples where that has happened here after purchasing the home “retail” on the MLS in recent memory.
Since Paul Harvey is no longer with us to say it, I’ll have to: “So now you know…the REST of the story!”
Posted by SantaCruzBroker at 8:29pm
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Competence & Ethics of Santa Cruz Realtors
November 02, 2008
A few months back, I got a letter in the mail from the Santa Cruz Association of Realtors. It seems that in order to remain a member in good standing of the Association, I need to complete the Quadrennial Ethics Training Course – it is a course that every Realtor must take and pass every four years. The course material revolves around the vaunted Realtor Code of Ethics. It took me a couple of hours to complete the course, and I passed, with a score of 84% (the minimum score is 75%). Hmm, I hope that doesn’t make you think I’m not 100% ethical!
My perception of the public’s perception of Realtors is that the public does not think too highly of my profession. For example, now that housing prices have crashed in many parts of the country (and Santa Cruz is no exception!), many fingers are pointing at Realtors for behaving unethically – by, perhaps, stating as “fact” things like, “housing prices never go down” or “your house is guaranteed to appreciate” or “if you can’t afford the payments, you can always sell and make some money.”
Is it unethical to make statements like that? Actually, I don’t see anything in the Standards of Practice set out in the Code that would prohibit making such statements. However, the Preamble does says Realtor® members should:
eliminate practices which may damage the public or which might discredit or bring dishonor to the real estate profession
Do you think that maybe, some members of the public were damaged by making unsupportable claims such as the ones I mentioned above? It looks to me like making such claims is not a violation of the Standards of Practice and therefore no action could be taken against Realtors for making such statements, however, telling your client these kinds of things clearly goes against the spirit of the Code of Ethics as set forth in the Preamble.
Aside from the public perception that that some (or many!) Realtors may be unethical, there is also a perception that many Realtors are, simply, incompetent. I’m going to confess to something which I perhaps ought not: I share that perception to some degree. In my own real estate dealings, I have found few agents which I would call unethical – but many, to be honest, have demonstrated frighteningly little competence. That is, perhaps, not surprising given the low barrier of entry into the real estate profession.
However, this creates something of a paradox – the fact that it’s easy to become a Realtor, anyone can join so long as they are a real estate licensee – yet, per the code of Ethics:
The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage…
I am not quite sure how one becomes competent in the field of real estate short of actually practicing it – and practicing it means, in almost all cases, becoming a Realtor. The truth of the matter is, the training for a California Real Estate license is very basic, and in fact, has little to do with the actual practice of real estate, despite the fact that one of the core courses is Real Estate Practice.
For example, one of the key documents we Realtors use is the California Residential Purchase Agreement (RPA-CA). It’s eight pages long, and it is the document most often used in the purchase of Residential Real Estate in California. It is a bit complicated and somewhat involved – however, understanding how it works is not a requirement to get a real estate license, or to become a Realtor.
Ironically, there is no violation of the Standards of Practice if it is “reasonably expected” that Realtor members are clueless about the various forms and documents they use for their day to day business. Of course, another brutal truth is, most Realtors have no day-to-day business – they have week-to-week, or month-to-month: there just are not enough transactions to go around which can support a Realtor community as large as we have here in Santa Cruz, even considering our recently diminished numbers.
I find it admirable (as I hope you do, too) that the National Association of Realtors requires that members take this training course every four years. I found the course to be a good bit above average compared with other on-line, distance-based educational courses I have taken this year.
However, no Code of Ethics, in my opinion, can take the place of educating yourself about your Realtors’ background, skills, education, and qualifications. After all, buying or selling real estate in California is a transaction that typically involves hundreds of thousands of dollars. I strongly advise that before you write up that listing or purchase agreement, you make sure you know who it is you are dealing with, such that you are sure they know what they are doing.
Posted by SantaCruzBroker at 12:36pm
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Signs of the Apocalypse in Santa Cruz
April 07, 2008
For many years, I’ve had the idea that one day I would write a book. My dad is a professional author – check out his latest book about psychic Annette Martin, Gift of the White Light. I plan to write a book that’s a cross between Catcher in the Rye and Zen and the Art of Motorcycle Maintenance. The project is some ways away from getting off the ground (decades, maybe) but I already have the first sentence picked out. It’s catchy. Ready? Here goes.
It was looking grim.
Did it grab you? I know, you’re hooked. Speaking of looking grim, here are some signs of the apocalypse.
[From Record numbers won't pay property tax bill - Santa Cruz Sentinel]
A near record number of homeowners likely won’t pay property taxes by the April 10 deadline, another sign of just how tight things have become.
Yep yep. The chickens are making themselves right at home, roosting all over the darn place. It’s no sweat not to pay your property tax. Santa Cruz county won’t auction off your home for like five years, so what’s the rush? The interest rate is only 10%, and what are you paying to CapitalOne? Only thing is, I hear that you if you want to work out a deed in lieu of foreclosure with your lender, they won’t work with you if you have unpaid property tax. So there you go, keep them property taxes paid, people!
So that’s one sign. There are others. It seems that one of the greatest occupations ever is under attack here in the Golden State. Yes, of course, I’m talking about real estate agents. There has been a precipitous drop of new blood coming into a industry that is clearly hemorrhaging:
[From Number of real estate agents starts to shrink]
Just 1,324 people took the real estate salesperson exam in January, down from 8,765 a year earlier and 14,397 two years ago, according to the Department of Real Estate.
There are other signs, too. But now I see we are fast approaching 9 AM here on the Left Coast and really I need to get cracking. It’s Monday morning, and despite the fact that the writing is clearly on the wall and the apocalypse is nigh, life goes on.
Posted by SantaCruzBroker at 8:42am
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