What’s all this talk about the Santa Cruz real estate market hitting some kind of plateau? Who is putting out that nonsense anyway?
The Santa Cruz real estate market came roaring back to life in October, hitting a median price of $718,665. That’s a muscular 12.9% increase over the price a year ago, and a healthy 6.5% increase over the month before, when prices appeared to have plateaued in the high-$600’s.
The Santa Cruz real estate market continues to defy gravity, and there are a number of forces at work here. More than anything, the lack of inventory is working to keep prices high. We finished October with just 430 homes on the market, and only 77 days worth of inventory. That’s a decrease of 12.8% in inventory compared to a year ago, and there are 18.9% fewer days of inventory too. By both metrics, supply is tight – too tight.
The sales-to-list-price ratio came in at 99%, a bit higher than the previous month when sellers received 98.7% of asking price, but lower than a year ago, when sellers were getting 99.3% of asking price. The homes that sold did so in an average of 49 days – little changed from last month, or last year.
At $718,665, the median price is up near the peak for the year – just about $10,000 less than in July, when the median home price hit $729,250. You can see median home price spiking up and up in our price-vs-absorption-ratio chart, and that the median price in October was the 2nd highest this year:
There’s more to the story than just the low inventory – after all, if inventory is low but nobody’s buying, that’s not a formula for pushing prices higher. Although sales volume dropped in October – just 168 homes closed escrow, a decrease of 13.8% from the month prior, and down 12% from a year ago – this is more due to the fact that buyers are still finding little inventory to choose from. There is considerable evidence that buyer demand will remain healthy over the winter and into the spring.
To wit, heck out the NAR Foot Traffic Survey, which shows what open house traffic has been like, coast-to-coast. Traffic at open houses has been rising steadily since June, showing more traffic at open houses clear into the beginning of fall. Now that winter has come to much of the country, those numbers will probably drop off, but appear to indicate that we’ll have stronger demand over this fall and winter compared to last year.
What’s more, mortgage interest rates continue to be low – very low, in fact. Mortgage rates are today as low as they’ve been in the past 17 months, hovering right around 4%. In fact, given today’s low rates, homes are now about 8% more affordable than they were at the beginning of the year.
What’s more, the U.S. economy continues to improve. Third quarter GDP was up a healthy 3.5%, which isn’t phenomenal but still respectable, especially compared to other major economies such as Europe in Japan. Due to weakness in these other economies, foreign cash continues to pour into the U.S. economy as investors seek a safe haven. This means that even as our economy picks up, money remains cheap, keeping mortgage interest rates low. And employment continues to grow, with the U.S. economy having added 214,000 jobs in October and the unemployment rate dropping to 5.8%.
Of course, the workforce participation rate still remains historically low, which I think is what goes a long way towards explaining why the Democrats got their asses handed to them in the November elections.
If you’ve read this far, you’re probably a regular reader of my newsletter and you know that for months – years maybe, by this point! – I’ve been saying that the market is going to be headed for a correction, or at least, that prices will plateau. I still believe that to be the case. The mix of factors which contribute to pushing the median price up over $700,000 will eventually change. The economy may weaken, interest rates will eventually rise, and at some point, more inventory will hit the market.
There seems little escaping the fact though that California’s bay area (and by extension, Santa Cruz county) is a very desirable place to live in and invest, with a diverse and strong economy. Given our slow-growth culture favoring overall low housing density and a premium placed on open spaces, it seems clear that over the long haul, barring catastrophe, affordability will remain limited and prices high.
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!