Santa Cruz Real Estate Update June 2014

Here we are, half way through June, and the spring home buying and selling season is pretty much over. We’ve had an incredible run of amazing weather for what seems like forever, but ever since June hit, we’ve had this June gloom…but has that cast a pall on the Santa Cruz real estate market? Read all about it in the Santa Cruz Real Estate Update June 2014.

The median price of single family homes in Santa Cruz county in May 2014 was $674,000 – that’s an increase of 8.7% compared to a year ago (when the median price was $620K), and an increase of 8.27% compared to the previous month, April, when the median price was $622,500.

And that’s the good news. And it’s pretty much the end of the good news. Sales volume was higher in May compared to April – up 8.2% to 184 homes sold county-wide. However, sales volume was down 27.8% compared to May 2013: a year ago, 255 homes closed escrow in May. Even more telling, the number of homes under contract dropped precipitously. We closed out May with just 196 homes under contract – that’s a decrease of 29.2% compared to the previous month, and down a jaw dropping 41.14% compared to May 2013, a year ago. These are big, big drops – you might even call them alarming. It’s especially strange because the number of pending sales almost always increases from April to May, but this year, there was a big drop.

Inventory continues to grow – we closed out the month with 452 homes available for purchase. That’s an increase of 5.6% compared to the month before, and still 19.4% lower than it was a year ago. It is expected that inventory should grow as we move later into the season. That’s what home buyers want to see, after all – more homes to choose from.

Of course, that’s not what anyone looking to sell their house wants to see – that’s called competition. There’s more inventory today than yesterday,but not only that, the days of inventory increased too. We ended May with 74 days of inventory available. That’s up just slightly from April, when we closed out the month with 73 days of inventory – but up significantly from a year ago, when we ended May 2013 with just 66 days of inventory. Even though the absolute number of homes for sale is today lower than a year ago, there’s actually more supply relative to demand. Good news for buyers, bad news for sellers. Just look at the price-vs-absorption ratio chart below to see what happens to home prices when there’s more supply than demand:

One last little metric to take a look at: the sales-to-list-price ratio. In May, homes sold at an average of 99.5% of asking price. This is of course a great sales-to-list-price ratio…but it is less great than last month, when it stood at 100.2%, and a year ago, when it was 100.3%. This indicates that sellers are receiving fewer offers on their homes and it’s more difficult to foment a feeding frenzy and bidding war to drive prices up over asking.

Looking at all this month’s numbers, it’s easy to conclude that the market has peaked and that we’re heading into a downturn. If you’ve been reading and watching my market reports over the past several months, you’ll remember that I’ve been saying that while we have had an incredible run-up, I think that it’s mostly behind us, and while the market may continue to rise modestly, I think it’s very unlikely that we’re going to see more huge upswings in prices any time soon.

The May 2014 Santa Cruz real estate sales numbers bear that out. While prices are up compared to a year ago, they are pretty much even with where they were six months ago, in November 2013, when we hit a recent high price of $680,000. It does indeed appear that we’ve hit something of a plateau at the moment – which of course never looks like a plateau, it looks likes dips and spikes but generally not too far off from where we are today, somewhere in the mid-$600’s.

Of course, I remember – vividly – back in 2006 I was thinking after that huge run-up in prices, as the market was cooling, that we’d probably reach a plateau and stay there for a while…and that was right before the market blew up, and, well, you know the rest of the story. The market is, I think, fundamentally different today than it was back right before the sub-prime mortgage crisis kicked off a massive slump in prices. I’m not predicting another housing price collapse, but I wouldn’t be surprised if we see prices start to sag. On the other hand, I would be pretty surprised if we did in fact start to see strong price gains where the median price went back much over $700K.

But, who knows? I have a bad (or good) habit of couching my predictions for the future, because of course, I have no real way of knowing. I do know that interest rates are down again, thanks to the consensus that the U.S. economy recorded a miserable -2% decrease in GDP in Q1 2014. Lower rates mean greater affordability and more purchasing power for buyers, and Silicon Valley does continue on its roll and is in fact driving our local housing market, regardless of how poorly the national economy is doing. So keep a sharp eye on what’s going on in Silicon Valley, because when the Silicon Valley housing market catches a cold, expect the Santa Cruz real estate market to get the flu.

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.

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!