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?

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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?

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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!