Grab a bottle of Log Cabin, because homes in Santa Cruz are selling like hot cakes! In May of 2013, a prodidgious 225 single family homes closed escrow in Santa Cruz county. To put that in context, the average number of monthly home sales in Santa Cruz county since January 2006 has been 163 – so volume is up 38% over the average. That sounds like a lot, but let’s keep some perspective: a year ago, sales volume in May 2012 was 220 units…but the month prior, April 2013, just 142 homes closed escrow.
But, drumroll please – what’s happening with home prices? The median home price in Santa Cruz county in May 2013 was $630,000. That is up considerably on a year-over-year basis: a year ago the median price was $501,500, meaning that the median home price is up 25.62% year-over-year. However, the median home price did dip from a month before, when the median price came in at $645,000 – so values are down about 2.3% on a monthly basis.
Given the way that prices have surged this year, it’s useful to look at the median price in a different context. The median price in May 2013 was just 20% below the “peak” home prices we experienced in May 2007, before the market came crashing down – and we’re up a hefty 55% from the “trough” (bottom of the market) which we say in April 2009.
So…that begs the question: what happened to all this claptrap about there being no recovery in home prices until 2020? It’s something we heard a lot about in the years since the boom turned to bust. If housing prices were unsustainable in May of 2007, how can it be that we are within spitting distance of that peak already, despite the fact that unemployment rate in Santa Cruz county is still at 9.9%?
To answer that, it helps to look over the back fence. Our neighbors in Santa Clara county have been hard at work – where the median price in Santa Clara county reached $830K last month, down just 4.6% from their peak in October 2007. What’s more, the employment picture in Santa Clara county is considerably brighter, with a April 2013 unemployment rate of just 6.5%. It seems that once again we are “enjoying” a spillover effect from Santa Clara county, where a home buyer’s dollar does not go anywhere near as far as it will now in Santa Cruz county.
Anecdotal evidence however points to a red hot market in Santa Clara county that may be cooling. Most sellers still get multiple offers on their properties, but nowadays instead of getting, say, 10 offers, sellers are more likely to receive just 5. Institutional investors are pulling out of the market as values have risen to the point where they will not make the money they need on a deal. And, to top it off, interest rates are rising and mortgage applications are plunging. Many analysts point to these low rates as a key driver of demand from buyers, as they move to lock in a cheap 30-year mortgage. As interest rates rise, however, the prices buyers can pay will decrease. In the absence of improvements to the buying public’s take-home pay, it seems that higher interest rates make significant, near-term future price increases unlikely.
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.
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