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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