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
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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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Santa Cruz Rental market in decline?
February 09, 2009
I was having a conversation with a colleague of mine in the office the other day. I was talking about how I feel that the market is still declining, and will decline considerably over the coming year. She asked me if I tell my clients that – and if so, how do I sell any real estate?
Of course I tell my clients that! I feel it would be a breach of my fiduciary responsibility not to tell them that, if I believe it to be true. However, that does not mean that I am telling people not to buy real estate at this time – depending on your situation, it may be a fine time to buy. For example, if you are doing a 1031 tax-deferred exchange, then obviously, this would be a great time to buy some investment property in Santa Cruz.
As another example, I said perhaps you are a renter, and you’ve lost your lease or something, and you’ve got to move. I said that prices have now reached the point where, in some situations, for some people who want to make Santa Cruz home and plan to be here, either as property owners or not, for some years to come, that it may be about the same expense to buy as to rent – or less, depending on where they want to live and what kind of home works for them.
My colleague then said something I had not heard before: “rental prices are dropping in Santa Cruz.” Well, I had heard the first part – that in many parts of the country, rental prices are declining. More specifically, rental prices in San Jose saw 3rd largest drop in the U.S. in the 4th Quarter of 2008. However I had not heard that rental prices were dropping in Santa Cruz – that is something I don’t expect to hear until real estate sales start to turn around.
My colleague figured that the reason rental prices would be dropping in Santa Cruz is that many sellers, rather than selling in a declining market like this one, have opted to just put their houses up for rent rather than try to sell in a market like this, and wait to sell when times are better. Well, I thought, that’s a possibility – I believe there are a lot of would-be home sellers, especially in the mid-county area, who are bursting at the seams to sell their real estate but are putting it until the market exits this cycle.
As it happens, I have a couple of friends who are right now looking for rentals. I met up with them the other night at a birthday get-together, and I asked them: how are you finding the rental market? Now, this is totally anecdotal and not the kind of empirical evidence you’d want in order to prove anything one way or another, but they said: yep, the market is softening.
However, they speculated that the market is soft at the moment because it’s the middle of winter, and this is a time when students are not looking to move into housing, they should have settled in by now.
Curious, I went over to Zilpy.com to see how rental rates are in the 95060 zip code. According to Zilpy, rental rates are pretty flat overall. There does not appear to be any precipitous decline in rental prices. And the Santa Cruz Sentinel wrote an article recently claiming that Santa Cruz County has rising rental prices.
From where I sit, it seems that rental prices in Santa Cruz remain high, and remain steady. We can thank the University of California at Santa Cruz and Cabrillo College for that, to a large degree. There are many other factors as well – many people who would be buying are not, and are continuing to rent, waiting for the market to bottom out. And of course, many people are losing their homes in short sales or foreclosures, and, rather than leave the area, instead decide to stay as renters.
Which brings me back to what I tell my clients – home values are still dropping. Given what it costs to rent a place, and given that rental demand here is likely to remain strong indefinitely, it may make sense for you to buy, even in this market. You’d want to talk to your accountant or financial planner about that, of course. But depending on where you are in your life, it may be this is a fine time to buy.
Posted by SantaCruzBroker at 8:15am
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How to Find Santa Cruz Open Houses
September 06, 2008
A lady who has been using my web site for a while just sent me an e-mail, enquiring about a property. She asked a common question: will there be an open house for this property coming up soon?
The tricky thing about looking for Santa Cruz Real Estate on SantaCruzHomeBroker.com is that most of the listings on this site aren’t actually my listings. The same is true for most Realtors’ web sites – the exception being, those Realtors whose web sites only show their own properties.
I can, however, help you to buy any of the listings you find on my web site. We Realtors employ a Multiple Listing Service – the MLS. It’s a database of what’s listed for sale by Realtors, and it’s a cooperative system. I can show and sell your listings on the MLS, and another Realtor can show and sell my listings. This is key to selling a home quickly and for the best price, as it gets quick and wide exposure to thousands of Realtors and hundreds of thousands of potential buyers.
When someone asks me, “Is there going to be an open house soon?” the definitive answer can be a little hard to come by if it’s not my own listing. The first thing I do is go and look at the listing itself – there is a place on the MLS entry for a property where the listing agent can put open house information.
This information can be searched by the public as well. If you point your web browser to mlslistings.com, you will see an image like this right on the first page:
That image is hyper-linked to an Open House Search page. From there, you can search by zip code, property type (house, condo, multi-res), list price, bedrooms, bathrooms, etc. It’s very handy.
Unfortunately, it’s not very reliable. Many Realtors do not update the MLS with the dates and times of their upcoming open houses. I don’t know what the percentage is, but I’d guess probably not more than half of a weekend’s open houses are updated correctly on the actual MLS.
For the rest, you’ll have to check on craigslist – sometimes, when a Realtor advertises a listing on craigslist, he will also put the open house information there.
I hate to say it, but perhaps the most reliable way of finding open houses is to, gulp, open up the newspaper. There’s very little real estate advertised in newspapers anymore these days – with the exception of open houses. Those are still pretty well advertised in the newspaper, and if you’re looking for a quasi-definitive list of what’s going to be open on the weekend, check out the Santa Cruz Sentinel. Or perhaps the Register Pajaronian.
Or, just make a call to your Realtor. Your Realtor will, I am sure, be happy to research upcoming open houses for properties you are interested in. Your Realtor will also probably be happy to hand you a stack of his or her cards and tell you that when you go to the open house, just say to the agent sitting the open house, “I’m working with so-and-so” and hand over one of the cards. This is like pushing a fat glowing bar of kryptonite at Superman or sportin’ a garlic necklace when in the company of Vampires – the over-eager and bright-eyed Realtor will go back to reading his book and leave you to explore the property in peace.
Happy House Hunting!
Posted by SantaCruzBroker at 10:57pm
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