Mid-Year State of the Market

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I’d like to start out by saying – another edition of my Santa Cruz Real Estate Report is out! For those of you who haven’t signed up to receive it, you can easily do so by clicking on this link:

Santa Cruz Real Estate Report

If you’re reading this blog entry, I’ll tell you a little secret. Actually, you don’t have to sign up to receive my real estate report – you can get it simply by clicking on this link to the monthly Santa Cruz Real Estate Report. You can do that once a month or so and just download it without having to sign up for it! But signing up to receive it is going to be much easier – you get an e-mail when the newest monthly report is up on the server. You just click on a link to download it when you want to read it – there’s no PDF attachment to clog your in-box.

This month brings news that the median home price in Santa Cruz during the month of June has dipped down 4.2% from the month before, and is down 0.4% year over year. Days of Inventory – the number of days it would take to sell all the homes presently on the market, at the current rate of sale – stands around 230, with an average “Days on Market” of 95.

But what do all these numbers really mean to you, the Santa Cruz Home Buyer or Home Seller? Well, let me help break it down for you…

Buyers

If you’re in the market to buy a home right now, the 0.4% price decline is very interesting to look at. Put another way, if you bought a house in June of 2006 for $500,000, it would be worth $498,000 today. All of these numbers are useful only in the most general of terms, of course – there are many neighborhoods in Santa Cruz county which continue to appreciate, and others which are depreciating much faster than 0.4%. If, for example, you look on Page 2 of my Real Estate report, you will see that Aptos is actually up 15.2% from last year, and Scotts Valley is down 14.6%.

What I think that this 0.4% decrease in year-over-year home prices means is this: generally speaking, the market price is pretty flat, with some homes (principally lower-end homes and condos) declining in value as other homes (near the beach, or with fantastic views and beautiful land) continue their inexorable march upward.

With the market in a gentle decline, is it a good time to buy a home? The answer to that really depends on your personal situation. If you really are in no hurry to buy, it’s probably OK waiting to see if the prices continue to “improve.” If, however, you are tired of renting, are looking for the tax break, or are thinking about buying an investment property of some kind, it can be a good time to buy as well.

If you’ve got good credit and a decent down payment, money is still cheap and relatively easy to come by. If you’re looking to buy-and-hold, you probably won’t be seeing interest rates this low for 2-3 years – or longer! After all, “they” say that interest rates are still at historical lows. Buying now and locking in a low rate may make good sense for you – even if the home value is flat or even down over the next year or two; if you’re looking to hold onto the property for the long haul, it may make sense to buy now while the money is cheap.

If you’ve got not-so-good credit and not much in the way of a down payment, is now a good time to buy? It may be – talk to a lender. If you can find a loan that makes sense for you – one that you can afford, and get out of with no early termination fees, you should proceed to the next step: see if there’s a house that makes sense for you. For mid- and low-end homes, it’s definitely a buyer’s market. Take advantage of it. Remember, the list price is just the asking price. In June, sellers were only getting 97.2% of their asking price – and that doesn’t include any credits (possibly totaling tens of thousands of dollars) the seller may have given the buyer.

Know what’s going on in the neighborhood you wish to buy in. Get a sense of the seller’s motivation. The best properties, recently listed, are going to sell for close to full asking price, or maybe even over if the asking price is good enough to attract multiple offers. However, the properties that have been on the market a while – especially the vacant ones, which are probably costing the owners a lot of money every month – can provide great opportunities for buyers, if the seller is properly motivated. However, if, for whatever reason, the seller is not flexible on the asking price, make sure that the price is a fair one for the buyer. Remember, you lock in the profit when you buy, and make the money when you sell.

Sellers

Now, what about if you’re interested in selling rather than buying – what does this 0.4% number mean to you? Again, that’s just a general number – you really need to look right in your own neighborhood. Unfortunately, I’m not able to provide neighborhood-by-neighborhood statistics, but my report does break down the various MLS areas.

Figure out what MLS area your home is in, and see what prices are doing there. Get realistic about what your home might be worth. Look at the homes that have actually sold, and what they have sold for – you can try Zillow.com, for example, although it’s not that accurate necessarily. Also, you really should talk to a Realtor. A Realtor – like me, for example! – would be happy to create for you a Comparative Market Analysis for your property, showing what comparable homes in the area have sold for in the last six months to a year. In a market like this, the fresher the comparable sales data, the better.

After you’ve summed up the market situation in your neighborhood, ask yourself: given that I can realistically expect to get only $XXX,000 for my property right now, is this really the time for me to sell? It’s important to get the “realistic” part right. Look at the “Days on Market” – the county average in June was 95 – but it Watsonville it was as high as 201! That’s right – if you want to sell your home in Watsonville, you can expect it will be on the market nearly seven months.

Of course, no matter where your home is located, if you want it to sell, it has to be priced right. It can be a total wreck, and it can still sell in 30 days – if it’s priced right. If it’s priced not-so-right, it will sell closer to the average of 95 days, and if it’s way over-priced, it’ll take longer to sell. Remember, it’s (almost) always about the price, given the location, condition of the property, and, very importantly, market conditions – principally, what else is for sale and at what price.

What’s happening in Watsonville is that there are many people who would like to sell, but cannot afford to sell it below a certain price (which is in most cases, the amount they owe to the lender, plus the costs of sale). This means that people are just waiting it out – nearly seven months! – before they get a price that’s somehow workable for them. Those sellers that bought year ago and can afford to sell cheaper than much of the competition are the ones who are selling their homes relatively quickly.

Location is just one thing you can’t really change about a property – but you can change some other factors that affect the property’s value and how long it will take to sell. It’s all the things you’ve probably read a million times before – clean up your house. Box up most of your personal stuff and move it to storage, or the garage. Spiff up the landscaping (cheap!), give it quick paint job on the exterior, and the interior, too, if you can. At least clean the floors and carpets seriously, and install new carpeting if the carpeting is bad.

What you want is to make your home shine compared to the competition – and there’s a lot of competition out there for most properties. In June, there were 166 sales of single-family homes – and 1,286 of them actively listed on the MLS. That means that in June, there was a nearly eight-month supply of homes for sale county-wide…but if you’re in Watsonville, there’s nearly a two-year supply of homes on the market right now.

It’s definitely a very interesting market today. There are a lot of opportunities out there for buyers, and a lot of gnashing of teeth for most sellers. If you’re in the market to buy, there’s a lot of smart purchases to be made. If you’re in the market to sell, consider waiting for conditions to improve, but if you have to sell, be realistic about what you can really expect to be able to sell for.

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