Santa Cruz Real Estate Update September 2014

Are double-digit home price increases a thing of the past?

The median home price in Santa Cruz county in August 2014, was $674,000 – that’s a “mere” increase of 9.1% from this time a year ago…but down 7.6% from the month before. It seems that we are finally getting a bit of a breather from these rampant, out-of-control price increases. Check out the last twelve months of Santa Cruz median price data:

Santa Cruz Home Prices, Past 12 Months

Santa Cruz Home Prices, Past 12 Months

It’s kind of refreshing to see home price gains drop back down into the single digits. But there are several indicators pointing towards elevated prices, not the least of which is the available inventory. Inventory dropped 11.5% in a single month – and was down 29% year over year. That’s pretty incredible, considering how tight inventory was a year ago. You can see the effects that low inventory has on prices, by looking at the price-vs.-absorption ratio chart below:

Santa Cruz Absorption Chart

Santa Cruz Absorption Chart

Home prices took a dip in August, but that’s probably due to a comparative spike in supply of homes in June and July. If demand stays strong, and inventory continues to shrink, expect home prices to rise from their current level over the next couple of months.

Many people think that the spring and summer enjoy the highest home prices of the year; last year, the highest median home price of they year was recorded in November, when the median hit $680,000. If we are to continue this 18-month-long streak of median prices growing year-over-year, we’ll need to exceed $680K come November. Given where inventory is today, it’s easy to think that will happen.

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

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Home prices are up a healthy 9.1% 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!

All in all, the Santa Cruz real estate market continues to exhibit rude good health. The question, as always, is: but for how long? Will the market continue to remain strong throughout the fall and winter, and into next spring? According to the Q3 2014 Zillow Home Price Expectation Survey, the analysts who were surveyed saw home prices continuing to appreciate though 2018, albeit at a slower rate than they are today, as seen in the chart below:

Projected Home Price Appreciation through 2018

Projected Home Price Appreciation through 2018

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!

Santa Cruz Real Estate Update August 2014


It happened again!

The Santa Cruz median home price hit a new post-bust peak last month: $729,250. That’s a rude 21.7% increase from the median price a year ago ($599K), and up a healthy 4.2% in just a single month. At this rate, it won’t be long before we hit the all-time high median home price in May 2007 of $769,500. Home prices are presently only 5.2% below that peak now. Here’s a chart showing what home prices have been doing for the past twelve months:

Santa Cruz Real Estate Sales

Santa Cruz Real Estate Sales – Last 12 Months

Pending sales – that is, homes under contract but which have not yet actually sold – are way, way down: we closed out July with just 107 homes under contract. This compares to 130 homes under contract a month ago, and 246 a year ago. Yes, that’s right: pending sales are down 56.5% compared to a year ago. It’s looking like a lot of real estate agents, mortgage brokers, and escrow officers are going to need to tighten their belts for at least the next month or two!

The story is unchanged from the past couple of years: low inventory, low interest rates, and a robust Silicon Valley economy are continuing to fuel the local housing market. In fact, the uncharacteristically low inventory is really the defining factor of the market. From the middle of 2007 through the end of summer in 2011, home inventory averaged over 900 units. Right now, there are 497 homes on the market, or in other words, inventory is 44% lower today than it has been historically. Inventory did grow from June to July, up by 10.4% – but it’s still 21.2% lower than it was a year ago.

This low inventory is really putting the crimp on the sales volume: plenty of buyers, but nothing to buy (which is what has driven up prices, more than anything else). 192 homes were sold in July, which is down 17.9% from July a year ago. Again, we turn to our friend the price-vs.-absorption ratio chart, which shows home prices compared to the rate at which the market is absorbing available inventory:

Prices vs. Absorption Ratio

Prices vs. Absorption Ratio

You can see that the median home price just continues to climb and climb, as properties are still being quickly absorbed. The absorption ratio is still very low, indicating that, for the county as a whole, we are remain a strong seller’s market. The big question, as always, is for how much longer?

The other day, I was talking to a friend of mine who works at a local bank. He’d mentioned that his colleagues were saying that housing prices are going to bust next year. As anyone who reads my newsletter knows, I’ve been saying for way too long now that these home price rises are bound to moderate, plateau, and eventually decline somewhat. But an outright housing bust…again? Didn’t we just do that?

It turns out, they’d been circulating a news piece about a prediction from David Levy of the Levy Forecast. He’s forecasting that there’s a 65% chance the U.S. economy will go into recession in 2015. Recession, schmession, right? That’s what I thought, until I read this:

Levy predicts a U.S. recession will throw its housing recovery in reverse, and push home prices below the low in the last recession.

Uggggh. That seems pretty incredible to me. Our median home price bottomed out around $500K – it’s hard to see how prices are going to drop 46% or so unless there is something absolutely cataclysmic in the offing. Could the next recession be as calamitous for real estate prices as was the sub-prime mortgage collapse of 2008?

For a contrarian view, the good folks at Altos Research have put out their 2015 forecast, and they are forecasting continued, robust price appreciation in 2015. According to Altos Research, U.S. home prices hit their low in January 2011 and are now 39% higher. Next year, Altos Research is projecting a 7% median home price increase nation-wide, due to continued strong demand from American consumers. They’re predicting this while at the same time predicting another 10% increase in inventory.

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

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Home prices are up an astounding 21.7% 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!

What would a 10% increase in inventory do to the local Santa Cruz real estate market? The answer is, it would barely move the needle either way. Demand is still far outstripping supply. Increasingly, home owners have the equity to sell their homes, but many still choose not to do so. A lot of retiring baby boomers aren’t going anywhere – where’s better than here, that’s any cheaper? That’s open to debate, but the evidence is that retirees are voting with with their feet, and they’re staying planted. Homes are just not turning over at anywhere near the rate they have in the past, and while that remains true, and the Silicon Valley economy remains healthy, it’s hard to see how we’ll see another sharp downturn in Santa Cruz home prices.

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!

Santa Cruz Real Estate Update July 2014

I’m going to come right out and say it: I’m surprised.

I just told the world that I think the market is peaking, and boom, here we go. The Santa Cruz median home price jumps up 23% year over year, and up 4% from the previous month.

The median price hit $699,750 in June of 2014, blowing past the most recent high of $680K we set back in November. Here’s what the past twelve months of Santa Cruz home prices looks like:

Santa Cruz Median Price, Last 12 Months

Santa Cruz Median Price, Last 12 Months

There’s more to the story, of course. The sales-to-list-price ratio dropped a bit, down to 99.3% (compared to 99.4% the previous month, and 100.1% a year ago). Inventory is creeping up; we closed out June with 450 homes available, that’s an increase of 10.3% in a single month – but it’s still down 22.9% compared to a year ago.

Pending sales continued to drop: we closed out June with just 131 homes under contract, a drop of 43% in a single month, and a drop of 56% compared to the previous year. With so few pending sales this month, next month ought to be really interesting to see.

Inventory is really what we need to be looking at, because that’s the key contributing factor to the surge in prices we’re seeing. Check out the absorption ratio vs. price chart:

Santa Cruz Absorption Ratio vs. Price

Santa Cruz Absorption Ratio vs. Price

That low inventory is really keeping pricing pressure going up. Interest rates have remained low, too – and that’s really helped keep prices moving upward. The big question I’ve been asking is: but how long can this keep up?

The California Real Estate market is Changing Again

Despite the booming prices we see now, the signs are pointing to a market which is shifting from a seller’s market to a buyer’s market. What’s going on? Read this controversial article about how the California real estate marketing is changing again.

According to Fannie Mae’s June 2014 National Housing Survey, the housing recovery appears to be “on pause.” It seems from reading the report that consumers nationwide are feeling the same way I am – that mortgage interest rates are going to rise, and home value increases are moderating. Whether that’s true or not is hard to say, but perception has a funny way of becoming reality.

As rates are already sooo loooow it is logical, of course, that rates would only go up from here (although they have been lower, and not so long ago). But in case you missed it, The U.S. economy apparently added 288,000 jobs in June, which is the 5th month in a row where job creation has risen above 200,000 per month. And numbers like that point to interest rates which are set to rise, as demand for money picks up.

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

house_calculator_180x120

Home prices are up an astounding 23% 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!

And here’s the rub: interest rates are the same, all across the nation. We pay the same for money here in California as they do in Detroit. While there’s more jobs out there, home buyers in Santa Cruz aren’t necessarily seeing a lot more money in their paychecks. Higher interest payments mean higher monthly housing costs, especially as prices rise…and if interest rates are rising, that’s a good indication that prices won’t be, or if they do, the rises should moderate along with it. Until, of course, inventory starts to pick up, which in inevitably will.

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!

Santa Cruz Real Estate Update June 2014

Here we are, half way through June, and the spring home buying and selling season is pretty much over. We’ve had an incredible run of amazing weather for what seems like forever, but ever since June hit, we’ve had this June gloom…but has that cast a pall on the Santa Cruz real estate market? Read all about it in the Santa Cruz Real Estate Update June 2014.

The median price of single family homes in Santa Cruz county in May 2014 was $674,000 – that’s an increase of 8.7% compared to a year ago (when the median price was $620K), and an increase of 8.27% compared to the previous month, April, when the median price was $622,500.

And that’s the good news. And it’s pretty much the end of the good news. Sales volume was higher in May compared to April – up 8.2% to 184 homes sold county-wide. However, sales volume was down 27.8% compared to May 2013: a year ago, 255 homes closed escrow in May. Even more telling, the number of homes under contract dropped precipitously. We closed out May with just 196 homes under contract – that’s a decrease of 29.2% compared to the previous month, and down a jaw dropping 41.14% compared to May 2013, a year ago. These are big, big drops – you might even call them alarming. It’s especially strange because the number of pending sales almost always increases from April to May, but this year, there was a big drop.

Santa Cruz Median Price, Last 12 Months

Santa Cruz Median Price, Last 12 Months

Inventory continues to grow – we closed out the month with 452 homes available for purchase. That’s an increase of 5.6% compared to the month before, and still 19.4% lower than it was a year ago. It is expected that inventory should grow as we move later into the season. That’s what home buyers want to see, after all – more homes to choose from.

Are Realtors to blame for high home prices?

Why are prices as high as they are? I say, blame the Realtors! Read my latest article on my Silicon Valley real estate blog about why Realtors are to be blamed for high home prices.

Of course, that’s not what anyone looking to sell their house wants to see – that’s called competition. There’s more inventory today than yesterday,but not only that, the days of inventory increased too. We ended May with 74 days of inventory available. That’s up just slightly from April, when we closed out the month with 73 days of inventory – but up significantly from a year ago, when we ended May 2013 with just 66 days of inventory. Even though the absolute number of homes for sale is today lower than a year ago, there’s actually more supply relative to demand. Good news for buyers, bad news for sellers. Just look at the price-vs-absorption ratio chart below to see what happens to home prices when there’s more supply than demand:

Santa Cruz Absorption Ratio vs. Price

Santa Cruz Absorption Ratio vs. Price


One last little metric to take a look at: the sales-to-list-price ratio. In May, homes sold at an average of 99.5% of asking price. This is of course a great sales-to-list-price ratio…but it is less great than last month, when it stood at 100.2%, and a year ago, when it was 100.3%. This indicates that sellers are receiving fewer offers on their homes and it’s more difficult to foment a feeding frenzy and bidding war to drive prices up over asking.

Looking at all this month’s numbers, it’s easy to conclude that the market has peaked and that we’re heading into a downturn. If you’ve been reading and watching my market reports over the past several months, you’ll remember that I’ve been saying that while we have had an incredible run-up, I think that it’s mostly behind us, and while the market may continue to rise modestly, I think it’s very unlikely that we’re going to see more huge upswings in prices any time soon.

The May 2014 Santa Cruz real estate sales numbers bear that out. While prices are up compared to a year ago, they are pretty much even with where they were six months ago, in November 2013, when we hit a recent high price of $680,000. It does indeed appear that we’ve hit something of a plateau at the moment – which of course never looks like a plateau, it looks likes dips and spikes but generally not too far off from where we are today, somewhere in the mid-$600’s.

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

house_calculator_180x120

Home prices are up 8.7% 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!

Of course, I remember – vividly – back in 2006 I was thinking after that huge run-up in prices, as the market was cooling, that we’d probably reach a plateau and stay there for a while…and that was right before the market blew up, and, well, you know the rest of the story. The market is, I think, fundamentally different today than it was back right before the sub-prime mortgage crisis kicked off a massive slump in prices. I’m not predicting another housing price collapse, but I wouldn’t be surprised if we see prices start to sag. On the other hand, I would be pretty surprised if we did in fact start to see strong price gains where the median price went back much over $700K.

But, who knows? I have a bad (or good) habit of couching my predictions for the future, because of course, I have no real way of knowing. I do know that interest rates are down again, thanks to the consensus that the U.S. economy recorded a miserable -2% decrease in GDP in Q1 2014. Lower rates mean greater affordability and more purchasing power for buyers, and Silicon Valley does continue on its roll and is in fact driving our local housing market, regardless of how poorly the national economy is doing. So keep a sharp eye on what’s going on in Silicon Valley, because when the Silicon Valley housing market catches a cold, expect the Santa Cruz real estate market to get the flu.

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!

Santa Cruz Real Estate Market Update May 2014

We’re now halfway through spring and well on our way to summer, which many people think of as the peak of the home buying/selling season. How are things shaping up with the Santa Cruz real estate market, now that we’re 4+ months into the year?

The median price of single family homes in Santa Cruz county in April 2014 was $622,500 – that’s an increase of 2% compared to a year ago (when the median price was $610K) – but it’s a decrease of 2% compared to March 2014, a month ago, when the median price was $635K. Sales volume was pretty much flat year-over-year, with 170 homes having sold in April 2014, compared to 169 a year ago in April 2013…but month-over-month, sales volume was up a robust 38% in April as compared to May. And, good news for home owners – the sales-to-list-price ratio in April again topped 100%, coming in at 100.2%. Sweet!

Santa Cruz Sales - Last 12 Months

Santa Cruz Real Estate Sales – Last 12 Months

While sales volume was up sharply compared to the month prior, inventory was also up. We closed out April with 428 homes available for purchase county-wide, up 17.6% compared to a month ago…but still 20.9% lower than it was a year ago. Pending sales (homes under contract, but not yet sold) were up 6% month over month but down 24.1% year over year.

The crucial metric for future pricing would be the Days of Inventory – which is down considerably compared to both a year ago and a month ago. We ended April with just 73 days of inventory available, down 18% compared to a month ago and down 21.5% compared to a year ago. Days of inventory shrank even though absolute inventory grew because the sales volume was comparatively strong.

Santa Cruz Absorption Ratio vs. Price Chart

Santa Cruz Absorption Ratio vs. Price

Bottom line? The Santa Cruz real estate market is keeping it together so far this year. Prices have not continued their dramatic march upwards – but the three month moving average for median price has been over $600,000 for the past eight months in a row, and the three month moving average for average price has been over $600,000 for twelve months in a row. To me, it seems that the market has perhaps reached a near-term plateau, with prices being sustained at the current level primarily because inventory remains comparatively tight compared to historic norms.

I personally still believe there’s a lot of inventory waiting in the wings. I talk to a lot of home owners, and what I continue to hear is that folks are planning to sell “in a year or two” when they expect prices to be higher than they are today. I remain unconvinced that prices will be significantly higher a year or two in the future, but many people are expecting they will be, and are looking for a little more equity in their homes before they make a move to sell.

But what will they do once they sell? For many of them, the answer will be to buy another home – either a larger one, or a smaller one. If that is indeed what they are planning to do, and they’re thinking that having more equity in their current home will make such a move more economical once they have more equity…they might want to think again. I’ve prepared another little video which shows that if you’re thinking of selling your current home and buying another, even in an appreciating market, that it makes more sense for homeowners to do that today, rather than in the future.

Want that spreadsheet?

Excel Icon Small Click here to download the spreadsheet used in the video, and figure out what your upsize / downsize scenario would be!

Did you watch the video? If not, take a couple of minutes to watch it, and then consider this. In the video, I used a couple of scenarios – one where prices increased by 8%, but where interest rates remain unchanged, and another where prices increased by 8%, but interest rates also increased by 1%. Both of these numbers are speculative, of course – but most forecasters are saying that rates will be rising over the coming year or two. Many people have posited that rising rates cut affordability and work to tamp down prices – I myself have said that on numerous occasions. While that may be true in a vacuum, rising rates usually coincide with a stronger economy – along with higher employment, greater wages, and increased buying power. Here’s a nifty chart from the Calculated Risk blog, which shows what’s happened to U.S. national home prices during periods of time when mortgage interest rates increased sharply:

Interest Rates and Home Prices

Interest Rates and Home Prices

Although the U.S. economy did put in a very weak 1st quarter, with GDP growth of just 0.1%, many people (including Federal Reserve chairwoman Janet Yellen) are ascribing that to the brutal winter most of the country just went through. Although the fed chairwoman is worried about a housing slowdown, overall she expects the U.S. economy is on track for a “solid” 2nd quarter, and expects the economy to grow faster in 2014 compared to 2013.

Of course, our local economy continues to be driven by our friendly juggernaut next door, Silicon Valley. The valley economy is booming, and prices there have soared into the stratosphere – making Santa Cruz county look like a comparative bargain. And, the valley economy looks set to continue cooking right along, with eight out of 10 executives of high-tech firms planning to grow their workforce in 2014.

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

house_calculator_180x120

Home prices have risen steadily in this year – how much is YOUR home worth in today’s hot market? Find out now with this free, quick, and accurate tool!

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!