Santa Cruz Real Estate Update February 2015

Welcome to February, the first month where we report what’s going on in the new year. I know you’re dying to hear the headline news, so I’ll cut right to the chase: the median price of single family homes in Santa Cruz county in January 2015 was $677,500. That is an increase of 10.2% compared to a year ago, but it is down 3.6% from the month prior.

Sales volume though was way down in January: just 86 homes closed escrow. That represents a decrease of 30.1% from a year ago – ouch! The fact that so few homes closed in January is not surprising, given the low number of pending sales a couple-few months back. Demand today is considerably stronger than it would appear looking solely at the drop in closed sales volume. This demand shows up in the form of multiple offers on listing after listing across the county: what’s available is moving.

Inventory is down, too: just 225 active listings were reported at the end of January, compared to 361 a year go – that’s a drop of 37.67% in inventory year over year. However, because there were so few sales in January, the actual relative supply of inventory has been jumping up. Check out this month’s absorption-ratio-vs-price chart:

Price vs. Absorption Ratio

Price vs. Absorption Ratio

While inventory is lower than it has been in absolute numbers, it’s interesting to see that when the absorption ratio spiked twice in the past three months (this January, and November 2014), the median home price dipped at the same time.

The median price – that’s the green line in the chart above – seems to have peaked in July 2014, when the median price came in at $729,250. There were only three months in 2014 when the median price was above $700,000: July, October, and December. But July was the high, and October was $716,554 and December was just barely over $700K at $702,500. And, in all fairness, the median price was exactly $699,750 in June 2014, just a few kopeks shy of $700K.

In fact, if you look at the single-year chart, you will see something kind of interesting there too:

Santa Cruz Home Prices, One Year

Santa Cruz Home Prices, February 2014-January 2015

That is, for eight of the past 12 months, the median price has been between $600K and $700K. February of 2014 came in at $598K, and then there were the three months when the price exceeded $700K. But since May, the median home price in Santa Cruz county has hovered between about $674K and $729K, and does not seem to be rising above or falling below that price level.

Is low inventory the new normal?

12836909_s
Our inventory has been running low for years now, and it’s been keeping upward pressure on prices. There are forces at work which are keeping the inventory of homes in Santa Cruz low. Learn how and why we’re in this situation, and if there’s any way to fix it in this in-depth article.

From where I’m sitting, it looks to me like this is the trading range the market has reached, and will probably stay here throughout the spring. I don’t expect prices to soar, or collapse this spring, and that’s because the market as we have it right now is about as good as it’s going to get. I just can’t see it getting significantly worse in the short term.

There are many signs pointing to at least steady, if not strong, demand. We have interest rates that are still very low, and more jobs are being created, with wages finally rising a little bit.

This should be the formula for rising prices, however prices have already risen to the point where affordability is a real stretch for most buyers. Without a sudden and sharp increase in hiring or wages, or a significant drop in interest rates, it’s hard to see how prices could quickly rise much further than they are already.

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Longer term, there are a few factors which could drive prices higher. One such factor is the ease of credit. If credit standards continue to ease up, we could see more buyers enter the market and potentially push up prices higher, or allow current borrowers the “flexibility” to borrow greater amounts – although the new ability to repay rules could well limit that.

Another factor which might drive prices higher, in nominal terms anyway, is the rate of inflation – which is way below target. But inflation is nowhere to be seen, and actually, the real worry at the Fed these days seems to be the threat of deflation. The worry about deflation is going to keep the Federal Reserve from raising interest rates, which will help to keep mortgage money so cheap.

What’s YOUR home worth in today’s market?

house_calculator_180x120
Home prices are up a healthy 13.9% compared to a year ago – but how much is YOUR home worth in today’s market? Find out now with this free, quick, and accurate tool!

In fact, if there’s anything which will actually serve to drive higher prices, it’s probably the same thing that’s been driving it for the past couple of years: very low inventory. Inventory, in terms of absolute number of homes available on the market, is the lowest it’s been in anyone’s memory. Low inventory – especially for homes under say $650,000 – is squeezing buyers right out of the market, by pricing so many of them out of the market. What little that’s available is going to ever smaller circles of highest bidders.

Please share my newsletter with anyone you think is interested in what’s going on with the Santa Cruz real estate market – just send them the link and they can sign up to receive an e-mail every month when the newsletter is ready. Thanks so much for taking the time to read this – I hope to hear from you soon!

Santa Cruz Real Estate Update January 2015

Let’s start the year off right with the Santa Cruz Real Estate Update January 2015! The good news is, the Santa Cruz real estate market finished off the year on a high note…but also a very low note as well.

The high note would be the median home price in Santa Cruz county, which came in at $702,500 in December. That’s a whopping 13.9% over the median price a year ago, and the 3rd-highest median price recorded in all of 2014. For all of you who think that the fall is a bad time to put your home up for sale – think again. It really comes down to supply versus demand.

And it’s in the “supply” department that the market appears to have gone completely off the rails. Did you see how earlier this month the Santa Cruz Sentinel reported that home inventory is the lowest we’ve seen in 18 years? That’s low. Actually, we ended December 2014 with just 234 single-family homes available for sale, county-wide.

Check out this month’s absorption-ratio-vs-price chart:

Santa Cruz Price vs. Absorption Rate since 2009

Santa Cruz Price vs. Absorption Rate since 2009

Go ahead and click on the chart to see the full size version. All the way on the right there, that pink bar – the absorption ratio reached 1.72. That is the lowest ratio in 66 months of data on the chart – since July 2009, when the market hit bottom after the real estate bust. The next-lowest ratio was 1.78 in March of 2013…and in April 2013, the median price rocketed up 35.8% year over year.

Are we setting ourselves up for another year of obscene, un-sustainable price increases? Obscene, maybe – but un-sustainable? I’ve been saying for a while now that these price increases are unsustainable…even as they keep being sustained. Zillow is reporting that mortgage interest rates are at a 19 month low (below 4%) and the U.S. Economy and the California economy are increasingly gaining strength…I’m beginning to question just how un-sustainable these prices are, given the low supply of inventory.

Not only that, but the crash in oil prices is putting hundreds of dollars per month into the pockets of most families in California. While that isn’t going to help improve their debt-to-income ratio on a loan application, it’s certainly going to make folks feel wealthier and perhaps more optimistic about assuming massive long-term debt in the form of a mortgage loan.

The inventory problem is supposed to solve itself. The theory goes that rising prices will result in more people finally putting their homes up for sale…but that still is not happening. Just the opposite, in fact – at least for now.

Is low inventory the new normal?

12836909_s
Our inventory has been running low for years now, and it’s been keeping upward pressure on prices. There are forces at work which are keeping the inventory of homes in Santa Cruz low. Learn how and why we’re in this situation, and if there’s any way to fix it in this in-depth article.

We’re also supposed to see retiring baby boomers leave their “sprawling” ranch houses and retire to Florida or some god-forsaken place like Texas, to take advantage of a lower cost of living. But if you paid off your $750K ranch house 10 years ago and your property tax bill is $2K per year, why exactly would you leave the lovely Shire of Santa Cruz?

“Aging in place” isn’t limited to Santa Cruz county – the good folks at the AARP, for example, recently published a survey which indicated that 87% of people over 65 want to stay in their homes as they grow older.

In short, it’s shaping up to be another banner year for those few home owners who are looking to sell their homes. But what of the beleaguered buyers who have been trying to get into a home in a market like this, with too many buyers chasing far too few homes?

The good news is that we pretty much have nowhere to go but up, at least in terms of the absolute supply of homes. Supply typically is lowest in the winter time, and there should be some more homes coming on the market this spring and into the summer. However, it’s looking increasingly unlikely that there will be anything close to enough supply to meet demand, and we can expect prices will keep rising – or at the very least, they won’t be retreating any time soon.

Want the best price for YOUR Santa Cruz home?

7904963_s
Why gamble on getting the best price and terms possible when selling your house? Want something more like a sure bet? Then you need to check out the SellForSure Home Sale System. A guaranteed, proven system for selling your home for the highest price, in the shortest time possible, with the least amount of hassle, uncertainty, and risk.

This is the time of year when people like to make predictions for all kinds of things – and the housing market is a perennial favorite. The California Association of Realtors is forecasting that the median price for homes in California will increase by 5.2% in 2015 compared to 2014, with a 5.8% increase in sales volume. They’re also forecasting a 3.0% increase in U.S. GDP for 2015, and that unemployment will be 5.8% – but that would actually be an increase in un-employment from today, as the official unemployment rate fell to 5.6% in January. More importantly, C.A.R. forecasts that California unemployment will drop to 6.7% in 2015 compares to 7.5% in 2014.

What’s YOUR home worth in today’s market?

house_calculator_180x120
Home prices are up a healthy 13.9% compared to a year ago – but how much is YOUR home worth in today’s market? Find out now with this free, quick, and accurate tool!

That’s all very well and good, but what’s the forecast for Santa Cruz county in particular? The good folks at Zillow are always happy to provide an instant forecast. For Santa Cruz county, Zillow is currently predicting that home prices will increase 4.2% in the coming year. If you look at their instant forecast, you’ll also note that the Santa Cruz county real estate market is rated as “very healthy” with a score of 9 out of 10, and only 8.1% of homes having negative equity and only 5% of homes delinquent on their mortgages.

From this early point in the year, the writing on the wall is pretty legible: with a resurgent economy, low interest rates, and cheap gas in the tank, the Santa Cruz real estate market is primed for another year of increasing prices. While 2013 and 2014 were both amazing years to sell a home in Santa Cruz, it seems that 2015 is setting up to beat both of them. Only time will tell.

Please share my newsletter with anyone you think is interested in what’s going on with the Santa Cruz real estate market – just send them the link and they can sign up to receive an e-mail every month when the newsletter is ready. Thanks so much for taking the time to read this – I hope to hear from you soon!

Santa Cruz Real Estate Update December 2014

Shhhhhh! The Santa Cruz real estate market is sleeping – or it was in November anyway, and it looks like December is going to be pretty sleepy as well. It seems the market is taking a nap after a very vigorous month in October. Read all about it in this Santa Cruz Real Estate Update – December 2014 edition.

The median price for single-family homes in Santa Cruz county in November 2014 was $685,250 – a bare 1.5% increase from the median price a year ago. It also represents a decrease of 4.7% from the median price last month. Sales volume though was really low – just 120 homes closed escrow in November, a decrease of 11.1% from a year ago, and down 30.2% from the previous month. Next month we’ll be looking at even fewer closings, as we finished November with just 83 homes pending sale in Santa Cruz county.

On average, sellers received 98.8% of full asking price for their homes – that’s slightly better than a year ago, when homes sold for 98.4% of asking price, but not so good as in October of this year, when homes sold for 99% of asking price. The homes that sold did so in an average of 48 days, which is pretty similar to the 49 days it took a year ago.

The interesting thing to look at this month is the ongoing saga of low inventory. Inventory got a whole lot lower in December, dropping nearly 12% in November compared to the month before, and down almost 29% compared to a year ago.

Is low inventory the new normal?

Our inventory has been running low for years now, and it’s been keeping upward pressure on prices. Learn how and why we’re in this situation, and if there’s any way to fix it in this in-depth article.

The fact that inventory dropped in November doesn’t really mean much until it’s put in the context of demand. With just 120 homes having sold in November – and closing out the month with just 83 pending home sales – we can see that actually the market is not absorbing the available inventory as quickly as it has been doing for most of the year. Check out the price vs. absorption ratio chart below:

Price vs. Absorption Rate

Santa Cruz Price vs. Absorption Rate since 2009

To see the chart a bit better, you can click on it and the chart will load up in its own window. If you will do, you will see that the absorption ratio bar grew considerably in November – which points to lower prices. And that’s exactly what we got in November, with a lower price month-over-month, and a very slim rise over the price a year ago.

The last time we had an absorption ratio like this was in March of 2014, which coincidentally enough was the low point of home prices in 2014…but just after that, prices took off like a rocket and climbed throughout the spring and summer.

The question is, will this happen again as we head into 2015? Looking at the chart, it’s pretty clear what happens to home prices when there’s lower demand relative to supply: prices tend to go down. If this trend keeps up, the data show that prices will in fact be headed down. However, there are some macro trends at work which seem to indicate that 2015 is going to be another strong year for real estate.

Want the best price for YOUR Santa Cruz home?

Why gamble on getting the best price and terms possible when selling your house? Want something more like a sure bet? Then you need to check out the SellForSure Home Sale System. A guaranteed, proven system for selling your home for the highest price, in the shortest time possible, with the least amount of hassle, uncertainty, and risk.

Specifically, the U.S. jobs report for November was surprisingly strong, with 321,000 jobs having been added. In fact, 2014 has been the best year for job gains since 1999. And, crucially, wage growth picked up, with hourly earnings up by 0.4% in the month – and up 2.1% for the year (slightly exceeding the rate of inflation). The wage growth number isn’t amazing, but it’s a positive trend in the right direction. Not only that, but payroll numbers were adjusted upward by 44,000 for both September and October, for an average increase in jobs of 278,000 over the past three months.

When the economy starts to heat up, and there’s an increase in demand for money, the natural effect is for interest rates to rise. Indeed, an increase in mortgage interest rates has been predicted by just about everyone…but that has so far failed to materialize. In fact, today, long-term mortgage interest rates are the lowest they have been since May 2013, with a 30-year fixed interest rate mortgage now at an average of 3.89%. Low interest rates like this will work to bolster home prices, as cheap money makes higher prices more affordable for borrowers.

What’s YOUR home worth in today’s market?

house_calculator_180x120
Home prices are up a healthy 12.9% compared to a year ago – but how much is YOUR home worth in today’s market? Find out now with this free, quick, and accurate tool!

So why are interest rates so low, given the fact that the economy is gathering steam? A lot of folks point out the fact that the U.S. Dollar is gaining strength, as foreign investors pour money into the United States. While our economic growth rate isn’t exactly eye-popping, we’re doing considerably better than, say, Europe, where the economy has expanded by just 0.2% in the second quarter of 2014.

But the U.S. employment rate, GDP growth, and mortgage interest rates are all national numbers – and real estate is a local business. Locally, the Silicon Valley is humming right along. For example, a real estate investment company has just made a $3.5 billion deal to buy more than 25 office buildings in Silicon Valley – a big bet on the strength of the area economy in the coming years.

According to Zillow, the median home price in Santa Clara county today is $830,000 – which makes Santa Cruz county look like a relative bargain. Once again, many folks with good paying jobs in Silicon Valley are looking to Santa Cruz as an affordable housing market, and this is the single biggest factor bolstering the local market.

Please share my newsletter with anyone you think is interested in what’s going on with the Santa Cruz real estate market – just send them the link and they can sign up to receive an e-mail every month when the newsletter is ready. Thanks so much for taking the time to read this – I hope to hear from you soon!

Santa Cruz Real Estate Update November 2014

What’s all this talk about the Santa Cruz real estate market hitting some kind of plateau? Who is putting out that nonsense anyway?

The Santa Cruz real estate market came roaring back to life in October, hitting a median price of $718,665. That’s a muscular 12.9% increase over the price a year ago, and a healthy 6.5% increase over the month before, when prices appeared to have plateaued in the high-$600’s.

The Santa Cruz real estate market continues to defy gravity, and there are a number of forces at work here. More than anything, the lack of inventory is working to keep prices high. We finished October with just 430 homes on the market, and only 77 days worth of inventory. That’s a decrease of 12.8% in inventory compared to a year ago, and there are 18.9% fewer days of inventory too. By both metrics, supply is tight – too tight.

Is low inventory the new normal?

Our inventory has been running low for years now, and it’s been keeping upward pressure on prices. Learn how and why we’re in this situation, and if there’s any way to fix it in this in-depth article.

The sales-to-list-price ratio came in at 99%, a bit higher than the previous month when sellers received 98.7% of asking price, but lower than a year ago, when sellers were getting 99.3% of asking price. The homes that sold did so in an average of 49 days – little changed from last month, or last year.

At $718,665, the median price is up near the peak for the year – just about $10,000 less than in July, when the median home price hit $729,250. You can see median home price spiking up and up in our price-vs-absorption-ratio chart, and that the median price in October was the 2nd highest this year:

Santa Cruz Price vs. Absorption Ratio

Santa Cruz Price vs. Absorption Ratio since market bottom in 2009

There’s more to the story than just the low inventory – after all, if inventory is low but nobody’s buying, that’s not a formula for pushing prices higher. Although sales volume dropped in October – just 168 homes closed escrow, a decrease of 13.8% from the month prior, and down 12% from a year ago – this is more due to the fact that buyers are still finding little inventory to choose from. There is considerable evidence that buyer demand will remain healthy over the winter and into the spring.

NAR Foot Traffic Survey

NAR Foot Traffic Survey

To wit, heck out the NAR Foot Traffic Survey, which shows what open house traffic has been like, coast-to-coast. Traffic at open houses has been rising steadily since June, showing more traffic at open houses clear into the beginning of fall. Now that winter has come to much of the country, those numbers will probably drop off, but appear to indicate that we’ll have stronger demand over this fall and winter compared to last year.

What’s more, mortgage interest rates continue to be low – very low, in fact. Mortgage rates are today as low as they’ve been in the past 17 months, hovering right around 4%. In fact, given today’s low rates, homes are now about 8% more affordable than they were at the beginning of the year.

Want the best price for YOUR Santa Cruz home?

Why gamble on getting the best price and terms possible when selling your house? Want something more like a sure bet? Then you need to check out the SellForSure Home Sale System. A guaranteed, proven system for selling your home for the highest price, in the shortest time possible, with the least amount of hassle, uncertainty, and risk.

What’s more, the U.S. economy continues to improve. Third quarter GDP was up a healthy 3.5%, which isn’t phenomenal but still respectable, especially compared to other major economies such as Europe in Japan. Due to weakness in these other economies, foreign cash continues to pour into the U.S. economy as investors seek a safe haven. This means that even as our economy picks up, money remains cheap, keeping mortgage interest rates low. And employment continues to grow, with the U.S. economy having added 214,000 jobs in October and the unemployment rate dropping to 5.8%.

Of course, the workforce participation rate still remains historically low, which I think is what goes a long way towards explaining why the Democrats got their asses handed to them in the November elections.

What’s YOUR home worth in today’s market?

house_calculator_180x120

Home prices are up a healthy 12.9% compared to a year ago – but how much is YOUR home worth in today’s market? Find out now with this free, quick, and accurate tool!

If you’ve read this far, you’re probably a regular reader of my newsletter and you know that for months – years maybe, by this point! – I’ve been saying that the market is going to be headed for a correction, or at least, that prices will plateau. I still believe that to be the case. The mix of factors which contribute to pushing the median price up over $700,000 will eventually change. The economy may weaken, interest rates will eventually rise, and at some point, more inventory will hit the market.

There seems little escaping the fact though that California’s bay area (and by extension, Santa Cruz county) is a very desirable place to live in and invest, with a diverse and strong economy. Given our slow-growth culture favoring overall low housing density and a premium placed on open spaces, it seems clear that over the long haul, barring catastrophe, affordability will remain limited and prices high.

Please share my newsletter with anyone you think is interested in what’s going on with the Santa Cruz real estate market – just send them the link and they can sign up to receive an e-mail every month when the newsletter is ready. Thanks so much for taking the time to read this – I hope to hear from you soon!

Santa Cruz Real Estate Update October 2014

Has the Santa Cruz real estate market peaked? That’s a question I was asked last month by the Santa Cruz Sentinel.

In a word: it’s too soon to tell. The market has peaks and valleys, and sometimes it has plateaus, too. In October 2014, the Santa Cruz real estate market appears to have hit a plateau, with the median price coming in at $675,000 – which is a scant $1,000 higher than the previous month, or just 0.15%. When you look at this chart, you can see what may be the beginning of a plateau:

Santa Cruz Price vs. Absorption Ratio

Santa Cruz Price vs. Absorption Ratio

At this point, the highest prices of the year were recorded in July when the median price hit $729,000, and it dropped to $674,000 in August, and now $675,000 in September. Interestingly enough, you can see that the absorption ratio was virtually unchanged in August and September, indicating that the balance between supply and demand was virtually identical in that time period as well.

I would, however, be remiss if I didn’t point out that the market is still up considerably over last year: that $675,000 median price is up 9.8% from a year ago, when the median price was $615,000.

This is not just a local phenomenon. Check out this graph below, which shows the percentage of year-over-year price changes on a national basis. This data comes from the Case Shiller September Report. It shows clearly that prices are still increasing year-over-year, but they are increasing by less and less as the year has gone by:

Case Shiller Year over Year Price Increases

Case Shiller Year over Year Price Increases

While the healthy price increases seem to be tapering off, the number of homes that were sold increased in September, with 195 closings. This is up 3.2% compared to last year, and up about 6% from the month before. Actually, this is the largest number of home sales in over a year…the last time we saw sales this high was in July 2013, when 205 homes were sold.

While homes are selling at a brisker pace, it looks like sellers are having to do some discounting to make that happen: the sales-to-list-price ratio in September was 98.7%; that’s down from 99.8%, which is how much sellers got a year ago – and also in the prior month as well. Not only were sellers discounting their homes in September, they were also taking longer to sell them. Homes that sold took an average of 48 days to do so, which is an increase 41.5% from the month before, and 24.6% longer than a year ago.

Inventory continues to remain extremely tight, with just 464 homes available for sale at the end of September. This is an increase of about 5.5% from the prior month, but is only about 1.1% higher than a year ago. Given the higher sales volume, this works out to a 69 day supply of “available” inventory at the end of September, a 4.2% decrease from a month ago, and a 27.3% decrease in relative supply compared to a year ago.

What’s YOUR home worth in today’s market?

house_calculator_180x120

Home prices are up a healthy 9.8% compared to a year ago – but how much is YOUR home worth in today’s market? Find out now with this free, quick, and accurate tool!

So where is the market going as we head into the fall and winter? If I had to make a bet, I’d say we’re in for more of the same: low inventory and strong demand are going to work together to keep prices buoyed up. Not only that, but interest rates have gone back below 4% again (sinking to a 16-month low), which means buyers have more purchasing power than they did a couple-few months ago. Not only that, but Fannie Mae has had a change of rules, and borrowers can now get new mortgage loans just two years after bankruptcy, short sale, or foreclosure.

Even with lower rates and more boomerang buyers back in the market, the median price may well decline in the months ahead. My question is, will it decrease on a year-over-year basis? Prices have not decreased year-over-year since February 2013, when the median price was $455,000 (was it only 18 months ago?). The market hit a lull at the end of 2012, but by March 2013, we were back doing double-digit price rises. What are the odds history will repeat itself in 2014/2015? Watch this space!

As always, to get the full, PDF version of my newsletter, broken down by different areas of the county and also by Single Family Residences as well as Condominiums, click here to download the full the Santa Cruz Real Estate Market Trends newsletter.

Please share my newsletter with anyone you think is interested in what’s going on with the Santa Cruz real estate market – just send them the link and they can sign up to receive an e-mail every month when the newsletter is ready. Thanks so much for taking the time to read this – I hope to hear from you soon!