Santa Cruz Real Estate Great Debate
May 17, 2009
Spring has definitely returned to Santa Cruz! We’ve been having some incredible days, and I’ve been enjoying being a new dad here in town, cruising around with wife and baby in the stroller, around the neighborhood, over to Aptos Village Park, down to the Capitola Beach, West Cliff Drive, soaking it all in. It’s been an incredible what, almost six weeks now since Aiden was born?
I must admit, with all the fabulous weather and my beautiful bouncing baby boy to take care of, I’ve taken my eye off the real estate market somewhat. And that’s a good thing – truth be told, I’ve been working, on average, over 80 hours a week for nearly the past two years, and I think that for me, it’s not a sustainable pace. I reckon these days I’m down to something closer to 40-50 hours a week, which does leave some precious time to spend with my wife and amazing little man.
I think that many of us started off the year thinking there would be some Change, right? I think we were promised that, and for good or ill, change has come. Certainly, the real estate market has changed over the past month or two. If you are a subscriber to my newsletter, you may have noticed that last month (April 2009), the median price of housing in Santa Cruz has risen.
Well, I guess that puts the lie to me, right? Here I am saying no no, we’re not at bottom – and now we see rising prices? Scant months after I got up on my high horse and said, “Wait out the storm, ye long-suffering would-be buyers!”
Let’s take a look at these numbers. First, the summary:
So from a median price in March of 2009 of $405,000 we have skyrocketed to a median price of $449,000 – nearly an 11% rise in a single month. Now let’s look at the breakdown of those numbers, divided up into different market areas in Santa Cruz county:
You’re going to have to click on the chart to open it up in a bigger window to actually read the numbers. Taking a closer look, you can see that in every market area except for Rio del Mar (Aptos) and Soquel, the median home price in April was lower than it was in March. Those two areas, however, showed such strong month-over-month gains that they did lift the entire median price up about 10.9% for the county as a whole over the month before.
Except for those two areas, every other market area in Santa Cruz county showed price declines. And let’s not blame it on Watsonville – Watsonville experienced the smallest price drop of all, just 0.7%. Capitola – down 12.3%, Scotts Valley, down 28.4% – and the West county (Bonny Doon, Davenport, Empire Grade, etc.) – down a whopping 28.6%.
Now, hold on a second. Let’s talk about lies, damned lies, and statistics. There is a chorus of voices saying that it looks like we’re hitting bottom – after all, the median price, county-wide, did just increase, right?
Nope, not really. The median price just decreased a whopping 33.5%. The truth is, it is pointless to look at one month compared to the month before, because there is a lot of seasonality in the real estate market. You really need to look at the year before to see how the market performed – and from the statistics, we can see the median home price, county-wide, is actually down 33.5% in April of 2009 compared to a year ago.
And some people are now saying the market is bottoming out?!
One thing that many folks from the “the market is bottoming!” camp like to point out is the number of multiple-offers some listings are receiving. It is true, the market for single-family residences priced under $400,000 is very competitive. Most of those properties in our neck of the woods are to be found in the Watsonville area, and there’s no lack of multiple-offer situations going on down there. There are also a lot of multiple-offer situations going on in San Jose and Salinas – I have a listing in San Jose where I got 34 offers (asking price: $349,900) and another in Salinas where we got a similar number (asking price: $149,900). Surely that means we’re at the bottom, right? Right??
Honestly, I am mystified how people can take a few anecdotes, completely ignore the state of the economy and the housing market as a whole, and now herald, with strident authority, that we are now at the bottom of the market and THIS, TODAY is the time to buy, or you will miss out on the chance of a lifetime.
It’s clear that the bottom is coming – there will be a bottom, someday, and prices will start to rise, eventually. And it’s true, we will only know it by looking in the rear-view mirror – which makes it impossible to say for sure that this is, or is not, the bottom of the market. What’s more, not all market segments will bottom at the same time, so there really is not truly a “bottom” so much as a series of different bottoms for different kinds of properties in different places.
Allow me to tackle the anecdotal evidence head-on. Again, many people point to these multiple-offer situations as evidence we have hit bottom. The thing is, there were many multiple-offer situations going on this time last year. Many. Why do you suppose that is?
I will grant you – there are more this year than last year – more properties getting multiple offers, and more offers getting submitted. Competition is, certainly, stronger this year. So let’s take a look at those charts again, at another key bit of information: the amount of inventory available.
Despite what you may have heard from certain interest groups (California Association of Realtors, National Association of Realtors, ahem), there is not a great selection of homes to choose from on the market. This time last year, there were 1,042 single-family residences available county-wide. Now, there’s just 787 available – that’s a drop of 24.5%. Simply put, there is a lot less to choose from this year than last year – creating more competition for those homes which are available. Good news for sellers, that’s for sure!
The overwhelming majority of these multiple-offer situations happen in the low end of the market – in Salinas, that would be under $250K, in Watsonville, under $350K, in San Jose, under $450K. What kind of homes are selling in these areas at these prices?
Bank-owned homes, that’s what kind. Only foreclosure real estate can sell at those prices. Well, that’s not true – short sales can also occur at those prices, and some people who have had their homes a long, long time may have enough equity in them to compete with all the REOs and short sales. However, I’d bet my bottom dollar that upwards of 75% of all of these sales are bank-owned “REO” foreclosure properties, probably another 10-15% are short sales, and the rest would likely be probate sales and whatnot.
As it happens, there is a distinct lack of REO inventory on the market right now – and again, at these price points, the vast majority of the market consists of REO properties. This inventory shortage comes just at the time when sales hit their peak – the hot time of our real estate market tends to be March through August, that is when more buyers are out shopping compared to the rest of the year.
So why is there a lack of REO inventory? Has there been some dearth of foreclosures, has the foreclosure crisis abated? Not hardly. Change has come, and during the transition, while all this TARP business and Making Home Affordable initiatives were getting going, the lenders had some self-imposed moratoria on foreclosures. That, and many states (including California) enacted laws to lengthen the time it takes to carry out a foreclosure – and that has served to really tighten up the inventory of these low-end properties.
These multiple-offer situations we are seeing now is simply the combination of a very constricted inventory coupled with the seasonal increase in real estate sales.
The good news for home buyers is that this, too, shall pass. The various moratoria have been lifted and the clock is already winding down on the laws lengthening the time it takes to foreclose on a property. What that means is that Notices of Default (the first step in the foreclosure process) are still near, at, or over record highs.
Here is what I predict – and I’m probably wrong, but I’m going to go out on a limb here. I predict that in 2-3 months, we will begin to see more REO inventory on the market. That puts us in the July-August time-frame. In 3-5 months, we will be seeing a lot more REO inventory coming onto the market – just at the time that the peak buying season is ending. We will see a significant increase in REO listings – and a continuing drop in real estate values, as supply once again exceeds demand.
Another interesting wrinkle is that many of these coming foreclosures are not bottom-rung properties. Many of these upcoming foreclosures are in solid, middle-, upper-middle, and wealthy neighborhoods. I wonder, what’s that going to mean for the market as a whole? Personally, I think it’s going to put increased pressure on the bottom of the market, as many people who were looking at buying a lower-priced “starter” home may now be thinking of stretching to go for one of these “premium” foreclosures which I expect we’ll be seeing.
And that doesn’t even begin to address the elephant in the room – the sad state of the local and national economy. There is a whole lot more to the picture than just the simple supply of foreclosures and demand for affordable housing.
So let the debate rage! We’ll see which way the chips fall, and I look forward to the market data from September, October, and November of this year. As the late Paul Harvey used to say – stand by for news!
Posted by SantaCruzBroker at 1:01pm
No Comments »
Santa Cruz Real Estate Deathmatch
March 29, 2009
One thing’s for sure – it’s interesting times we live in. Whether you think the current housing crisis is the cause or a symptom of the economic meltdown in the United States and abroad, there’s no denying that there’s a great deal of uncertainty about how long this recession will last, how deep it will cut, and what this means for people looking to buy a house in Santa Cruz today.
I’ve said it several times in various postings to this blog, but I think it bears repeating: I think home prices in Santa Cruz county will continue to drop for the foreseeable future – and by that, I mean the rest of this year, at least. This is an opinion that is apparently not shared by some people, as we see buyers falling all over themselves (and other buyers) in a mad scramble for these “bargain” properties.
A few days ago, the Santa Cruz Sentinel ran a story about what homebuyers found at close to the median price of $380,000 in Santa Cruz County. I thought it was a pretty good read. I “watched” a lot of these properties come on the market and get sold, and it’s interesting to get a report from “inside” the transaction. One thing that was interesting is how many agents said their buyers received closing cost credit (typically in the 3-4% range) – I know from my own listings that this is common place, but you rarely see this in the “private remarks” section of the MLS. It’s an important bit of information – if a house is sold for $380,000 but the seller credited the buyer $12,000 for closing costs, the house really only sold for $368,000.
Another eyebrow-raiser were the anecdotes from the buyer’s Realtors, talking about the multiple offers. One agent told of showing her client “100 houses” (nice agent!) and writing up 15 offers, before finally being the winning bidder on a house on Grant Street in Santa Cruz for $412,500.
I myself have been there and seen this a lot of late. It’s not a new thing – as I mentioned a blog entry or two ago, this multiple-offer feeding-frenzy has been going on at least 18 months, I don’t see that it is more common today than it was a year or so ago – but perhaps it’s being talked about more in the media, as there is now more effort into talking up the economy rather than talking it down.
I work with a few buyers, although mostly my work these days is with the banks, listing and selling their REO assets here in Santa Cruz, but also in San Jose, Gilroy, Salinas, etc. I have some buyers who I’ve been working with for some time – we haven’t seen a hundred houses and we haven’t written 15 offers (yet!), but we’ve written up a good number of offers and haven’t yet been the winning bidder.
The day before yesterday, though, my client sent me a link to a listing which had “0 days” on market – meaning, it had popped up on the MLS only a few hours ago. I had seen it when it had come up (I send myself e-mails from my automated system for every bank-owned home that hits the market), but at the moment, I had a number of deadlines I was working to meet so I didn’t look at the particulars to see that it was really an incredible deal. When my client wrote me about it, I took a closer look. I wrote back – “Sounds like a winner, let’s go see it tomorrow, at the crack of dawn.”
The next morning at 8:30 AM, we went out to the property and took a peak. Stunningly cheap – priced well, well below market value. After only a couple of minutes at the property, we were already talking about writing it up. As fate would have it, though, it was about 4 hours more before we would actually send the offer in. And send it we did – at which point I called the listing agent, who informed me there had been four offers, all offers had submitted their “highest and best” offers, and that the bank had just chosen one of those buyers. All of that, in less than 24 hours.
It’s a bit of a mystery why a bank would price a home so low and then not give the home proper market exposure before accepting offers. Many of the banks that I work with have a 5 or 7 day minimum market time before they review offers, and that gives enough time to attract a good number of high-quality offers. Those that do not wait a few days before reviewing offers often leave quite a bit of money on the table, it seems to me.
But that’s nether here nor there. Whether a bank takes the first offer that comes along, or waits 7 days before reviewing offers, the point is this: it’s brutal out there for buyers of these “bargain” properties. The big question in my mind is, why is there such a clamor to buy something which in many cases is going to be considerably cheaper six months from now? What is driving everyone to fight tooth and nail for these properties which are still steadily dropping in value?
There’s any number of reasons, of course. Many buyers probably think that we are at the bottom of the market. You can’t time the market, after all – it’s impossible to say just when the bottom has been reached, and usually you can only tell when you are coming off it. Many buyers have just been itching to buy for years now, and finally, prices are “affordable” – and now, declining market be damned, they’re going to buy into the American Dream.
I have a theory, though, I’d like to run it by you. My theory is that there is actually very little for sale at the moment compared to the demand that’s out there. At any one time, there are only a few dozen properties listed for sale – not already in escrow – which are well priced for today’s market. Spying through the MLS, I see every house, condo, and multi-res property that hits the market – and more often than not, I say to myself: “What are these people thinking?!”
You see, most houses just aren’t priced to sell. In order to get $700,000 or $800,000 – hey, let’s face it, even $600,000! – for a house these days…the house has got to be pretty special. It’s gotta be tight, turn-key, in a good location, or have enormous and obvious upside potential. And yet, the market is flooded with houses in these price ranges…and there are no buyers for them. There would be buyers if the houses really were turn-key in fabulous locations – however, those properties are also usually priced $200,000 more than the market is now willing to pay for them.
These days, there is absolutely no shortage of buyers in the mid-county area in the $400,000-$550,000 price range. The problem is, there are almost no properties in this price range – and this is the reason why, I think, we have this Real Estate Deathmatch thing going on. There’s just very little tho choose from at the price the market is willing to pay.
Take, for example, the listing at 3365 Branciforte Drive. I am the co-listing agent of this property. This property had actually been listed by my office for a loong time – since May of last year. But then, it was a short sale, and started out at $799,000. Actually, when it started out, I don’t think it was a short sale – but as the months went by, the price was reduced until finally the owner owed more on it than the market would pay. It was in contract as a short sale at the time the property got foreclosed on – but there was no stampede of buyers vying for it at the time.
Why? Because nobody likes a short sale. Once that property became a bank-owned foreclosure listed at $459,900 – woah. Many buyers avoid short sales because so few of them are successful. For example, this very same property – it was in contract as a short sale and then…it got foreclosed on anyway; the buyer had full loan approval and was all set to close. The buyer had spent hundreds of dollars on an appraisal and a septic inspection, all for naught. Who needs that kind of aggravation, right?
This property ended up getting 10 offers on it – this is being sold by one of the banks that lets properties sit on the market seven days before reviewing offers. It should go ‘pending’ probably on Monday, after the bank chooses the winning offer. And all this madness over a house with serious foundation issues. True, it’s got a nice lot and it’s in the Happy Valley school district, but this house really needs a lot of work.
But buyers are willing to take it on- because there’s just not a lot out there in this price range. Soon, though, the now-healthy pool of buyers even in this price range will start to shrink. Unemployment continues to rise, and lenders continue to tighten lending standards – and that’s a fatal one-two punch that even historically low interest rates will not be able to combat fully.
So if you’re one of these buyers who writes 15 offers and misses out on every one – if you are battered and bloodied by this Real Estate Deathmatch that’s going on – take heart. This is just the Universe’s way of telling you that the time for you to buy hasn’t quite arrived. Time is on your side – if the deathmatch is too brutal, there’s no harm on sitting the sidelines a while longer, so you can heal up for future bouts to come.
Posted by SantaCruzBroker at 10:00am
No Comments »
Kickin’ It At Home in Santa Cruz
August 14, 2008
Something funny happened today as I was out showing property to some clients of mine. We go to this house – I had actually shown it a day or two before to some other clients. The owner is an enthusiast of machines – like cars, motorcycles, motors – I think he is a mechanic or something.
So we are in the back yard, looking at this small aluminum boat of some kind, that’s up on wooden sawhorses. And we are chatting about the property and what could be done with it and all, and we’re looking at the ground down kind of in front of the aluminum boat. There’s something wrapped up in black cloth lying almost underneath the boat.
“What’s that?” someone says. “I think it’s like an outboard motor covered in cloth,” I said – kinda looked like it might be one, there were one or two other outboards lying around. “What if it’s a body?” another of my client asks. We kind of laugh about that, and talk a few moments more…
…and then my client kind of kicks it lightly – more like taps it – with his foot. “Dude,” he says, “I think it is a body!” and we all laugh and say, “Ha ha, that’s not funny.” And he goes, “No, I’m serious!” and nudges it again with his foot.
Then, all of a sudden, the black cloth springs to life – “Hey, what’s going on?!” says some guy who had been sleeping there underneath the black cloth, wrapped up kind of like a mummy, or an outboard motor. There were a few shrieks from the ladies, and a lot of laughter. It turns out, the guy actually lived at the house, but had come home late from a night of partying or something and didn’t want to wake up anyone in the house, so he just crashed out in the back yard.
How can you not love this town?
Posted by SantaCruzBroker at 9:49pm
No Comments »
Blog Entries
