Show Us The Money!

showmethemoneyphotoIf you want to pick up the full thread of recent ramblings,  you’ve got to go to  https://tombrezsny.wordpress.com  and read my three previous columns exploring different dynamics that are playing themselves out in very distinct price ranges of the Santa Cruz County real estate market.

Last week we looked at market stats for the highest priced homes in SC. Those listed above $2m and $3m (all the way to $15m!) We ended with the observation that the market for the highest of our high-end homes has been conspicuously missing in action for the first 7 months of 2013.

What should we make of the high-end slump we are in?  After 7 months, with more than 50 properties actively listed in the upper-echelons, shouldn’t some  properties be selling for $3m. Or $5m. Or higher?

They did last year. And the year before. And the year before that.  You gotta go back to the earliest days of the advent of the million-dollar home market in SC, to find a drought lasting this long.

It begs further questions.  We’re right next to Silicon Valley. The overwhelming consensus is that the general economy and the housing market are both much-improved. There’s big money out there.  So why isn’t that money buying one of those great beach homes on the sand or one of those beautiful view estates up in the hills overlooking the Bay? Writing the offer even as we speak? Where is that money riding and/or hiding?

I’m going to give you my own ten cent tour of the landscape.  A quick synopsis factors/trends/trajectories/shifts that I think are contributing to our lack of high-end activity.

I’m sure my thinking is flawed but I’m going to take some solace in advance,  knowing that back in 2006, Alan Greenspan,  arguably the most well-informed man on the planet when it came to economic information, data collection and statistical analysis,  apparently had no clue about what some of the rest of us in the lowly ranks of the uninitiated knew long before that big old bubble burst.

– Stock Market on a Roll:  When the stock market is up, the real estate market doesn’t necessarily follow. It often goes in the other direction.  High Net Worth Individuals (HNWIs) like to keep their money in the stock market.

– Interest  Rates Low:  When the rates are low, moderate income people purchase primary residences with long-term fixed-rate mortgages.  When interest rates are low HNWIs keep their money invested in equity markets and put off buying those discretionary homes by the beach till later.

-Facebook Fall Out:  When Facebook’s IPO didn’t happen as planned, those teeming hordes of Facebook millionaires weren’t unleashed on the real estate market.  Dozens of other high-profile IPOs geared to follow were held back.  Less crazy IPO money = less crazy real estate purchases.

– Concentration of Wealth:  Big money is getting concentrated into the hands of fewer people. Even among the wealthy.  Venture Capitalists in Silicon Valley have the biggest bucks – but that’s an increasingly exclusive club of HNWI.

– Old Tech vs New Tech:  The nature of the tech in Silicon Valley these days is fundamentally different. Old Tech was chips, software, lots of employees, highly-paid engineers, older executive-level salaries, infrastructure and huge buildings. Silicon Valley was growing towards us – migrating further south towards the beaches of Santa Cruz.

New Tech is younger, smaller, social media/web-based/mobile apps, algorithms, fewer employees, information in lieu of products. Silicon Valley is moving farther north from Palo Alto to the urban coffee houses of San Francisco.  Different home choices follow in the wake..

-Demographic Shifts.  Big changes are afoot. Tough to see when your are living in the middle of them.  But the signs are everywhere, all around us.

For the first time in more than 100 years Urban Areas are growing in population and Suburban Areas are shrinking.     Nuclear Families now represent a minority of American households.  Aging Baby Boomers and Young Urban Techies are drawn to places where they can walk and experience active lives and rich cultural offerings.  People are downsizing. Getting more green. Leaving smaller carbon footprints.  Driving less.  Owning less stuff.  Many of these factors combine to promote the cultural and aesthetic antithesis of large homes and conspicuous displays of wealth.

Ok folks,  there’s  some Food for Thought.  I’m open to other suggestions about why the high-end market is flat.  Share ‘em if you got ‘em

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