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. We hit an absorption rate of 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.

Take all your equity when you move

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.

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?

Change Happens

“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.

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.

Find your Place

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!

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Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.