Santa Cruz at Market Bottom? Some Say Yes, I Say No

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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.

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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!”

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