Monthly Archives: July 2013

Down the Upstairway

escher-stairs-6306396Just so we don’t dilly-dally too long and lose the plot… let’s pick up the thread of the storyline from the last few weeks.  Goes sorta like this:

Sometimes different markets develop right alongside each other. They reflect very different characteristics and levels of activity even while co-existing in the same time and space. Joined at the hip. But a hip that’s been slightly dislocated.

So far in 2013, different markets have played themselves out in simultaneous fashion.  Those involved as a buyer or seller with just one level may have a skewed perspective of the others. Realtors working across the full range of the monopoly board usually have a better view of the market’s multi-dimensional nature.

We’ve been talking about the bifurcation that currently exists between homes listed higher and lower than $800,000.  A rather broad-brushstroke of a concept to be sure – but the activity level, the price pressures, the available inventory all discernably seem to fork in and around the $800k mark.

Go to https://tombrezsny.wordpress.com/ to catch up on those previous columns.

Today’s premise is that there’s actually a third level in our ménage-a-marketplace.  One that starts with listings above the $2 million mark.

A quick background check informs us that up until 1997,  Santa Cruz County had no million dollar market. Those “kinds” of homes didn’t exist here. Maybe in Carmel or Pebble Beach. But not in the funky little beach gulag of Santa Cruz.  The tech boom of the late 90s changed all of that.   And the bubble days of the 2000s carried it along further on a rising tide.

While we haven’t had a long history in the highest-end of high-end homes here, we’ve had an enough of an active chapter over the last 15 years to see that magic million dollar threshold grow appreciably higher.  Active enough to generate a series of $5m, $6m, $7m sales.   Active enough to be able to step back, size things up and talk about the high-end as though it were really part and parcel of the larger marketplace.  Like it really belongs here in Santa Cruz.

When a property is listed at a price that has never been achieved before in SC County – say $15 million – it’s difficult to say that there’s an actual market for it.  Tough to make any assumptions about who’s going to buy it. Or how long it will take to sell. Or whether it will sell at all.

I can hear those immortal words floating on the ether right now “All it takes is one”.  Of course it’s remotely possible any of us could win the Big Spin tomorrow and become that very one ourselves!

So it’s 2013. Where is the high-end at?  Above a million dollars and up to around $1.5 – $1.8m there has been a real, actual market dynamic at work. Giving us enough transactions and comps and activity to discern and detect trends and recommend realistic list prices and purchase prices to prospective Sellers and Buyers.

But from there up…things change.  Somehow past $2m, things have ground to a noticeable and abrupt …not quite halt….but definitely a grind.  One that’s unlike anything we’ve seen for quite some time.   We’d have to go back to the early days – 1998 – to find a drought period this long.

Let’s look at a few market stats for homes listed above $2m.

Halfway through 2013, the MLS shows that 10 properties above $2m have closed. One at $2,550,000. The other 9 between $2m and $2.2m.  And nothing sold above $2.55m.

At the present moment, there are two properties in escrow above $2m.  None listed above $3m.  We won’t know what these two properties sell for until when and if they actually sell. If one or both do close they won’t close higher than the $2’s.

We have 52 active listings on the market above $2m as of yesterday.  Some…many…most are racking up significant days on market.  These 52 listings range from $2m to $15 million – with a sizeable number falling in the $3m – $5m range.

So what should we make of this high-end slump we are in?  Certainly after 6 months, with more than 50 properties on the market in the upper echelons – some properties should be selling for $3m.  Or $5m. Or more.   They did last year. And the year before. And the year before that.

I’m open to suggestions. Next week we’ll talk about possible reasons for the conspicuous lack of activity.

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Looking Above the Glass Ceiling

looking_glass_3Sometimes it helps to re-state real estate ideas more than once. So they can sink in. I’ve noticed a few people out there who have an uncanny knack for reading Real Estate of Mind and reciting a version of it back to me that isn’t even close to what I was thinking when I wrote it.

I don’t begrudge anyone their personal filters. I know most people are going to manufacture conclusions based on their own well-honed and jealously-guarded realty tunnels.  But as part of my ongoing mission to keep on keeping real estate as “real” as something with so many moving parts can be…let’s revisit last week’s column before moving on.

This is a bifurcated marketplace we are living, working, buying and selling in.  Call it a house divided.  Or lots of houses divided into a few camps.  There’s the real estate market that exists below $800k. And then, there’s a very different market that’s playing itself out above $800k.

In way, way, (and I  mean WAY) over-simplified terms – under $800k has been hot. Plenty of multiple offers. Overbids. Conspicuous lack of acceptable, decent, livable, attractive, soulful, inviting inventory to chose from.  Upward price pressure. Plenty of Buyer frustration.  Chances are that something that might have sold for $625,000 a year and a half ago could sell for $750,000 today.

Above $800k?  Listen closely folks – cause here’s where things often wander off track and get lost in translation. Above $800k the market dynamic is different.  I didn’t say dead – as in a doornail. I didn’t say non-existent. I didn’t say chock- full of pitiful Sellers who might as well resign themselves to racking up empty Days on Market in perpetuity.

It’s just different.  It isn’t moving at the same pace or experiencing the same pulse rate as our “other” market.  There aren’t the same pressure points.  Or the same relationship between supply and demand. Multiple offers aren’t presenting themselves like low hanging fruit, ripe for the picking. There’s more inventory to choose from.  Things listed at $995,000 last year wouldn’t sell for $1,200,000  this year. Nor would things listed for $1.5 necessarily sell for $1.75.

So it’s different.  Not all or nothing.  Not good or bad. Sellers don’t need to buy into a doom and gloom scenario but they do need to corral their upside expectations accordingly.  A median price jump of $100k isn’t an engraved invitation to raise prices across the entire monopoly board.  Baltic Avenue isn’t the same as Marvin Gardens.  In the same sense – if $1.2 and $1.5 homes over in Los Gatos and Saratoga are flying off the market in two days with ten offers,  it doesn’t mean similarly priced homes in Santa Cruz County are going to do the exact same thing.

Over there – $1.5 homes are our $750,000 homes.  Just regular old ranch style places in standard neighborhoods.  Nothing special.  You have to make that adjustment in your head, if you are a seller in Santa Cruz listening to all those apocryphal success stories making their way over the hill.

Some Buyers in Santa Cruz should also consider making adjustments in their own thinking.  As I said last week, the best values, can be found among homes listed in higher price ranges.  Above the heat of the “other” market’s over-stimulated erogenous zone.

By the way,  if it’s any comfort, the upper end of the price spectrum in Los Gatos slows down just like it does here too.  It just tops out at a correspondingly higher price point.  Things start to cool noticeably when they get above $2 million. But the pattern is the same.  And the similarity in pattern is what we should really focus on.  It’s telling us something important.

Next week – Maybe you’ll humor me and allow me to add a third tier to the Santa Cruz County market mix.  We’ll call it a tri-furcated market and spend some time examining what’s been happening with that special subset of even higher-end high-end homes listed above $2 million on this side of the hill.

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Time to Stretch?

ShoulderStretchHow did we end things last week?  In no uncertain terms.  If you’re trying to purchase somewhere in the $500k – $750k  price range in Santa Cruz, good luck.  It might as well be 2005 all over again. Multiple offers. Overbids. Price increases.

That’s where almost all of you want to buy. And all of you are each others’ greatest competition and worst nightmare –  it’s called huge demand vs minimal supply.

But buying a home listed higher than $800k?  Not so much.  It’s almost like a big glass dome settled over our market, isolating the majority of people below it, on the inside.  Outside? At price points well-above the artificial ceiling?  Things look very different.

Let’s take one common market niche of yesteryear – single family homes in the $800k to $1.2mill range. From 2003 through 2007 this was a major hot spot of activity.  Lots of sellers. Lots of buyers. Lots of transactions. Things were smokin’.

The Median Price for single family homes hovered in the high $700s. The Average Price – well into the $800s.  My own average price per transaction for five years running was more than a $1,000,000.

So …what happened?  Where did all that activity go? What changed?

Here’s a list of factors that have contributed to this mysterious glass dome that’s holding the majority of purchase activity below $800k:

-There’s not the same unshakable faith in the future there was in 2005. Not enough time has gone by to make people forget that the market goes down too. It doesn’t just go up.

-The recession/depression of 2008 still weighs heavily on people’s psyche’s and pocketbooks. They are risk averse. They aren’t ready to over-leverage their futures with too much debt.

-People are buying beneath their means. They don’t want to borrow as much money as the banks are willing to lend them.

-The Credit Crunch is alive and well and squeezing borrowers.  The average loan process feels like a portion of your anatomy has been placed inside one of the ubiquitous Inertia Nut  Crackers  of late night infomercial fame.

– There’s a prevailing sense that banks don’t want to lend money despite the carrot of incredibly low interest rates dangling right in front of our eyes.

– Full documentation loan means full documentation. Forensic style.  If you can’t find that old PGE bill that you were late paying on 6 years ago, you could be in trouble.  Underwriters are intent on crossing every t and double dotting every last umlaut.

– The difficulty of buying and selling a house simultaneously, specially without the freedom of easy qual loans and equity lines dolled out like Halloween Candy, makes a move-up market hard to manifest.

-One of the most difficult rental markets in the Country has gotten even worse. It adds another hurdle for people hoping to sell, then rent for an interim period, before moving up to a new home.

– The nature of the latest tech surge that is happening over the hill seems fundamentally different than those of the past.

Unlike the late 90’s – this tech boom seems to gravitate between Palo Alto and San Francisco instead of southward towards San Jose and by extension – Santa Cruz.

Remember when Cisco was going to build that huge campus in Coyote Valley next to Morgan Hill? Unthinkable today.

-This tech boom is less labor intensive.  Social media requires fewer employees. Not as many high-paying jobs driving higher-priced housing.

-New tech entrepreneurs represent a younger demographic than the old days. Some haven’t bought their first homes. Let alone their second. A lot of them don’t have kids yet. They like using public transportation. They want to be in an urban setting – not banished to a suburban gulag.

There’s a demographic age shift happening among those people who can actually afford Santa Cruz prices. Aging baby-boomers want to downsize and simplify at this point in their lives – not up-size and amplify with huge houses.

It’s an interesting conundrum – this stuck-ness of ours.  I’m not sure what the release point will be or when/if it will come.  Food for thought.

It’s funny,  because in a certain way,  the best buys are the more expensive homes – where there is far less competition.  If you were going to stretch a bit – now would be the time.

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