Just in time for the holidays, the Santa Cruz real estate market has provided local home owners with a handsome gift: the median home price increased again, to a new high for the year: $680,000. That’s up 30.1% from a year ago, and up 3.1% from the month before.
The market was absolutely smokin’ back in April, when we hit that high of $645,000 – an increase of 34.5% from the year-ago level. The market then took a pause, and the price dipped a bit for the next couple of months…but since July, the median price has been marching steadily upwards, for five consecutive months.
Although the median home price has increased robustly, the amount of inventory – that is, homes on the market available for purchase – dropped sharply compared to a month ago. In October, we closed out with 442 homes available county-wide. In November, that number dropped to just 350 homes available – a decrease of 20.8% from just the previous month…but almost exactly the same as where we stood a year ago, when 349 homes were available at the end of November 2012.
While inventory has dropped, the amount of sales also edged downward. Just 124 homes closed escrow in November – down 8.8% from the month prior when 136 homes closed in October, but down 25.3% from November 2012, when 166 homes were sold. Looking at it another way, sales are down 44% from this year’s peak, when 224 homes were sold in the month of May 2013.
Examining at the chart above, it’s clear that the market has rebounded robustly from May 2009 when the median home price bottomed after the sub-prime mortgage bust and recession. It’s also interesting to note just have much prices have soared since February of 2013 when the median price was $455,000 – that’s an increase of 49.4% in just the span of nine months. But don’t take my word for it – check out this chart from Zillow:
The big question in my mind, and in those of a lot of folks I talk to is: why have prices shot up so much recently? How are people paying so much for homes, when the local economy is comparatively weak? I think there’s two factors at work in our local market: 1) inventory remains very low, and 2) the economy of the colossus to the north, Silicon Valley, is doing very well. A recent article in the San Jose Mercury news, for example, states that employment in Santa Clara county is back at its peak level. Not only that, the median price in Santa Clara county is significantly higher than in Santa Cruz county, with average prices over $1,000,000 as the Mercury News reported earlier this year – which makes Santa Cruz county look like something of a bargain for less-well-heeled tech-workers looking to buy housing.
The news isn’t all rosy, however: the numbers of recorded Notices of Default, the first stage of foreclosure, jumped 21.6% in October as compared to September. While overall defaults are still down 16.7% compared to a year ago, it is a reminder that there are a lot of folks who are still struggling to make their mortgage payments, and who have no or little equity in their homes. It remains an open question as to what will happen to home prices if “distressed” homes come on the market in significantly greater numbers.
But for now, that’s not happening. Today’s market remains very much a seller’s market, and prices may continue to rise in the short term. A word of caution, though: just as prices have spiked so high and so quickly, it remains possible they could drop back down again, just as quickly. There’s no real way to time the market – so if you’re thinking of selling your home in 2014, my advice would be to do so sooner rather than later.
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