Monthly Archives: August 2017

Low Inventory Shouldn’t be a Zero Sum Game



Part 3 in a Blog Series on the Great Shrinking Inventory

Still hot on the trail, trying to find answers to the mystery behind Real Estate’s Low Inventory woes.  Or to put it in the vernacular:  Why more Sellers aren’t Selling!

My short list of culprits contributing to the great drought of listings we’ve experienced over the last four years reads as follows: 1) Lack of new supply being built 2) Big demographic shifts in aging 3) The symbiotic relationship between a tight rental market and a tight purchase market 4) Tightening regulations around mortgage lending and changing perceptions about debt.

Continuing on…Here’s the thing about residential real estate: It’s almost never a zero sum game. When a Seller sells a home and a Buyer buys it, that’s not really the whole equation.  Because that Seller also needs to buy something else (unless they have died).  And that Buyer is also coming from another place he/she just sold (unless they are a first time buyer).

In the past, the amount of available inventory at any given time has often been a function of just how easy it was for Sellers to make the transition into becoming Buyers and vice versa. How fluid the mechanisms of change were.

For most of the last thirty years I’ve been doing this,  our local market has been fueled by move-up buyers.  Buyers transitioning into new and often bigger and better living situations as their lives and jobs were growing and their needs were expanding.

The typical move-up story goes something like this:  A young person in their twenties or early thirties finds a way to squeeze into a home. Any home. Maybe a small house in a dicey location. One that needs work. Or perhaps a condo, priced lower than a single family residence. Maybe parents gift him some money, so he can establish a foothold in the market.

This First-time Buyer lives in the property for a reasonable length of time. And takes advantage of the mortgage interest/property tax deductions while he’s working his way up in his profession.  He gets married and has a kid over the next five years.

Then, it’s time to move-up.  Leveraging the equity gained from home improvements and rising market prices. Using it as a downpayment for the next place. Bigger. Better location. Larger lot. More amenities.

The next house serves their lives well for another reasonable period of time and then…guess what. It’s time to move-up to the next house using the new equity it has gained. Depending on the strength of the market and the size of the job, it’s possible that this third property is the last stop –  the house that will work for the next twenty or thirty years.

Sometimes one more move-up is required to reach the upwardly mobile dream house.  But whether it’s third or the fourth home, along the way, no one is thinking much beyond twenty years into the future.  In the past, not that many people were living healthily into their eighties like they are now.

In those robust move-up markets of yesteryear, there were always lots of Sellers becoming Buyers and Buyers becoming Sellers within the same marketplace. The existing inventory turned over much faster.  The average length of time people spent in their primary residences was shorter.  Instead of 7 years it might be five or even less. There was always something new coming onto the market that was worth buying.

Until there wasn’t. Next week:  The move-up market runs head first into a move-down market.

Low Inventory: Sign of the Times?


Part Two in a Multi-Part Series on Our Shrinking Inventory

Low Inventory.  What else is there to talk about?  Even the most casual observer of the real estate scene can see and feel how many fewer homes there are on the market than in past years.  Whatever happened to those flash mobs of open house signs that used to overrun our busy street corners on the weekends?

No one misses the visual blight of course, but Buyers are sure missing not having more homes on the market to choose from.  Thus our questions du jour:  Where did all those listings go? Why aren’t more Sellers putting their houses on the market?  How come there’s been such a radical disconnect between the levels of supply and demand, over the last four years)?

It wasn’t always this way. Back In the early 90s, the real estate market often started out the new year with 1600-1800 active listings. To provide a little perspective on just how low our current low inventory is,  there were only 170 single family homes on the market last Saturday in Santa Cruz County.  A  record new low that’s not going to change much in the  months to come.

Before digging deeper into the discussion about the “whys” behind our historic low inventory there’s one big factor that we should remind ourselves of:

In other parts of the country, the number of homes for sale routinely jumps regularly when new subdivisions come on line. And we all know that the odds that any new giant subdivision will pop up in Santa Cruz in the foreseeable future are somewhere between zero and none.

Most of Santa Cruz’ biggest development tracts, like Santa Cruz Gardens or University Terrace on the Upper Westside were built close to 50 years ago. Even Kaufman and Broad’s Skypark Project is more than 20 years old.  Suffice to say, there’s no magic bullet out there on the inventory horizon primed to inflate the supply of available homes.

I’m not griping about local slow growth policies here, merely remarking that a different kind of status quo has evolved in our community. One that harbors its own special brand of cognitive dissonance that goes something like this:  Santa Cruz is a desirable place to live.  But one of the things that makes it so desirable is that it isn’t overrun by urban sprawl.

We’ve preserved lots of open space around most of our older established neighborhoods. In part, so they couldn’t be built out anymore. The urban service line drops off quickly on the non-ocean side of Hwy 1 and there can’t be more than a handful of infill lots that are still available on the ocean side of it.

So it boils down to this: Lots of people want to live here, but once you live here, you really don’t want a lot of other new people to live here. 

And yet almost everyone who lives here also bemoans the high cost of housing (buying and renting).  And worries about whether their kids will be able to afford to live here. And also worries about how Santa Cruz is changing as more people come from other places.  And oh yeah, also worries that they won’t be able to afford to retire without selling their home and moving elsewhere.

And these are the things we’ll take up in next week’s column: Honey,  We shrunk the Inventory!

How Low Can It Go?


Part 1 of The Great Shrinking Inventory Mystery

Today’s question?  What’s the one big thing, above and beyond all other things, that has defined the Santa Cruz County real estate market and influenced its direction over the course of the last four years?  Starting way back in the early spring of 2013 when it became clear we were turning the corner and beginning to climb out of the doldrums lingering in the wake of the great mortgage debacle of 2008?

That’s when the Distress Market we had come to know (and not love), reached its tipping point.  Prior to that, the large number of short sales, foreclosures and bank-owned homes had accounted for almost 40% of our local real estate transactions.  And after that, the once-steady stream of new Distress Properties hitting the market began slowing to a comparative trickle. (These days, REOs and Short Sales only comprise 1% of our marketplace).

That one big thing is, of course, “inventory”.  Specifically the glaring, exasperating and hugely-controlling lack of it. Without exception, the ongoing story of our incredible shrinking inventory has been the dominant theme of the market’s most recent robust recovery – one that has propelled it from the edges of the subprime abyss to heady new median and average price points well-above where they were at, at the height of the bubble in 2006.

What a long strange trip it has been. When that big glut of Toxic Loans and Distress Properties finally disappeared, nothing else was there to take its place. No new influx of “Organic Sellers” was waiting in the wings to fill the void. The market didn’t return to any semblance of “normal”. Rather, it seemed to swing back to the other extreme almost overnight.

Instead of a market overpopulated by Distressed Sellers who were underwater on their loans and late on their payments,  we suddenly found ourselves in the middle of a market full of Distressed Buyers complaining about the lack of opportunities and clamoring to outbid each other for the next new listing that came on.

Every year, for the past four years, the inventory of available homes has grown successively smaller while the disconnect between the amount of available supply and the upwelling of effective demand has only grown larger. The result?  A new kind of market dynamic with a new set of characteristics:  Increasing competition for fewer homes. Multiple-offers. Frequent overbids. All-cash offers.  Shorter escrows. Longer rent backs. Shorter contingency periods. Fewer days on market. And record prices. I assure you folks, real estate hasn’t always been like this.

 As I was writing this, I glanced quickly to see how many active single family homes were listed on the MLS. There were roughly 170 single family homes available throughout the county – from Boulder Creek and Bonny Doon to Santa Cruz and Aptos to Corralitos and Watsonville.  Of course, almost 70 of them were listed for more than $1 million. And for anyone who wasn’t looking as far out as San Lorenzo Valley or South County, there were less than 50 homes for sale between Scotts Valley and Aptos listed under $1 million.

So here we are. More than halfway through 2017. And not surprisingly, also at the depths of another historic low in inventory.  Since it looks like low inventory is going to continue to shadow us for the foreseeable future, we’ll spend more time next week trying to figure out why there are so few homes on the market and why more people don’t want to sell.


Staging: Can’t Leave Home Without It


Staging Your Home Part 1

Today’s Question: How did we ever manage to sell homes back in the old days when staging wasn’t a big “thing” like  it is now? Specially when so few sellers or their agents were inclined to put very much effort into painting, primping or preparing their new listings before they went on the market?  

Did those hundreds of places I sold back in the 90s and early 2000s just get up and sell themselves somehow?  By today’s standards they were a motley assortment of fixer-uppers and former rentals that had been rode hard and put on the market even harder. A slew of 50s and 60s ranch homes that hadn’t been updated in a bazillion years and had about as much charm as a bag of hammers.  And lots of old Victorians and aging 1920s Craftsmen homes whose better days were buried somewhere deep beneath 37 layers of paint.

All of them were real pieces of work that probably could have used a little work before hitting the MLS.  But back then Sellers and Agents thought differently.  We subscribed to what can only be called a  “staging-light” approach (as in ultra-light.)  We did the basics and not a whole lot more.  The goal was to spend as little time and definitely as little money as possible.  

Most Sellers were ok with paring down belongings and doing some modest decluttering. They were fine with paying a housecleaner and a carpet cleaner to come in and do the basic. And every once in awhile they could be convinced to hire a handyman/painter to blot out all memory of a particularly hideous wall color that was going to bum the collective chi of every prospective buyer who came through.

Seller were less resistant to the notion of establishing “Curb Appeal” back in those days. Somehow they grokked that curious buyers would soon be caravaning by their home as soon as it went on the MLS.  They intrinsically understood that if that first wave of drive-by, buyers didn’t like what they saw from the outside, then they certainly weren’t going to make the effort to get inside to see the rest.  

Of course, like all Sellers both then and now, they had less natural resistance to the idea of tweaking things on the outsides of their houses than they did about rearranging things on the insides their homes. (Inside changes feel more like criticisms and judgements about their personal choices.)

Think back to those wonderful scenes in the 1999 movie American Beauty (five Academy Awards.)  Annette Benning is the struggling Realtor who is scrambling around in her slip, frantically trying to get things ready before the big open house.  She’s using a tooth-brush to clean the thick brown grout line between the 1970s tile.  And she’s using a few cheesy-looking  tiki-torches in the backyard pool area as stage props, to create a little lush “Tahitian atmosphere”  at an otherwise awful middle class home totally lacking in personality. It’s classic. And that was more or less what constituted staging back in the day.

Today, all of the above seems rather quaint.  Almost inconceivable at a time when prices are higher than they’ve ever been and the medium of the internet increasingly controls public perception about what our homes and hearths should look like.  Staging isn’t seen as a choice anymore.  It’s more of a necessity if a Seller wants to get a top dollar return on their investment.

Next week we’ll spend more time talking about the whys and wherefores of staging.

Sound of the Market’s One Hand Clapping?


Wow, time flies!   Congratulations everyone, we’ve officially made it past the halfway point of the 2017 market. Let’s take a moment to check-in and initiate a quick, mid-year update on the state of real estate in Santa Cruz County.

Let’s imagine we’ve all been given the special power to become bugs on the walls of all the open houses that will be happening out there this weekend. That way, we can secretly listen in to what people are saying about the market.

If the bug analogy doesn’t work for you, let’s pretend that the internet of things has given us a special eavesdropping device that uses those newfangled NEST home network systems to hack into the ambient noises of the marketplace.

What kinds of things can we expect to hear on the street and in the privacy of those homes this weekend?

The first sounds we’ll hear are the resounding echoes of Tuesday’s article in the Sentinel. A bold-font piece announcing Santa Cruz County’s new all-time median price high. The trailing data just arrived and the midpoint of all single family homes sales in May rose to a whopiing  $870,000 –  $40k  higher than the median we logged in April.

But wait… there’s another noise that’s ratcheting up the decibel levels. Those are bells and whistles accompanying the average price data for the month of May. That number was a wildly unexpected and unprecedented $982,670!  Maestro, cue the fireworks.

And yes,  there’s a loud gasp coming from folks who never imagined they’d be able to say they live in a place where the average home price is almost a million dollars!  While some of the jubilation is dulled by audible groans from old-timers who aren’t happy about the way Santa Cruz is changing and who worry that their kids will never be able to afford to live here. (And who incidentally don’t think they’ll ever move from their current home.)

All modulated of course by excessive lip-licking on the part of those planning to put their homes on the market in the near future.  Who are certain they’ve timed the market perfectly.  Not to mention the contented sighs of home hobbyists who keep mental calculators handy to compute their equity each time median and average prices change. (Somehow the future feels better when your house is earning the equivalent of free airline miles each month).

Meanwhile, there’s a low rumbling noise in the distance that’s getting louder by the minute. That’s all the grumbling resonating around the City Council’s recent public input session about our housing crisis.  And if you can pick out a few high-pitched shouts above the din, those are rants coming from people getting out their frustrations on the public Facebook forum about local rents.  And that constant murmur weaving through it all?  That’s the ongoing discussion about limiting Air B&B’s and other short term rentals due to the impacts that these kinds of properties have on housing costs and local rents.

Just one more thing,  although I’m guessing you’ve probably already heard enough by now… that’s the sound of the secret whispers coming from Sellers who are a little surprised by the way the market is behaving.  Their refrain goes something like this:  “Where are all the Buyers? It’s been a week and I thought we’d have multiple-offers by now?”

Reverse Mortgages: How Do They Fit Into the Puzzle?

Part Four of Four


This is it.  My last column about  “reverse mortgages.” At least for awhile. They’re  one of those things most people love to hate even though they don’t really know much about them.  I’m not even sure why I’m even talking about them since they don’t have much to do with helping people Buy and Sell homes.  

But  they can make a huge difference when it comes to helping some people to stay in their homes while enjoying much happier, healthier and longer lives.  So stay with me on this. You might not think it’s important right now,  but the whole point of these columns is to introduce relevant info you might need in the future.

The long, wandering ramble I’ve been on the last few years has been my attempt to give voice to the things I see and hear out there in the real estate trenches everyday. The things so many people seem to be wrestling with in the privacy of their own homes at the moment.  

How does selling a house fit into the giant puzzle of retirement planning, long-term health care, estate planning, property tax and capital gains tax issues,  social security payouts, pension distribution –  not to mention just the simple, everyday questions most of us have about maintaining quality of life as we age?

The longer the discussion continues, the more convinced I am that no one past the age of 50 should even think about selling a house without learning more about all of the above.  It is all of these factors combined,  in conjunction with your largest asset and most important bastion of security (a.k.a. Home),  that create the wholeness out of the sum of the parts of our lives.

If you believe that’s true, then I’d like to posit that Reverse Mortgages are one possible tool you can use to help design the kind of flexibility your life is going to need in the future.  Here are a few ways they can help:

Social Security: Consider them as a way of delaying the start of social security benefits –  which can mean higher monthly payments later.

Delaying Pension Distribution: They might allow you to push back the age you start taking your pension distribution (which could also have tax advantages.)

Increase Cash Flow: In situations where retirement assets aren’t quite enough to make life comfortable, they can supplement your income.

Growing Line of Credit:  Reverse mortgage equity lines can grow at a compounded rate of 5% per year and provide an ongoing safety net that actually gets bigger as you age – not smaller.

Long Term Health Care:   A reverse mortgage equity line can act as a defacto long-term care hedge, specially if you can’t stomach the ongoing expense of a standard long-term care policy.

Protect Portfolio Performance:  If you rely on your portfolio for your living expenses, there’s nothing worse than selling equities during a down market cycle. Reverse mortgages can help hedge against the possibility

Buffer Cash Reserves:  Every financial plan on the planet calls for a reasonable amount of cash reserves as an emergency buffer.  Reverse mortgages can help maintain a comfortable level.

Homeownership: Best of all,  in cases where people have no choice but to sell their home to get to their equity,  reverse mortgages do offer a choice to consider that may keep them in their home.


Reverse Mortgages: Can the Fonz Make Them Cool?

Part Three of a Four Part Series


Week three. Talking about something we’re not supposed to talk about in polite real estate circles. Something ‘The Fonz’ (Henry Winkler) talked about for years as a celebrity spokesperson. It goes without saying: If  Fonzie can’t make this cool, I don’t stand a chance. But here goes…more on Reverse Mortgages.

Why do so many people hate reverse mortgages even though most have very little knowledge about the details? Last week we covered the common complaints. The ones you’re likely to read when you google Reverse Mortgages.

We also noted the biggest challenge and the greatest opportunity the future holds for reverse mortgages: The world is getting older. More people are living into their 80s and 90s.  And a huge swath of aging baby-boomers is coming up behind them.  As the population ages, the big question for more and more people is:  “Can we afford to grow old?”  Traditional notions about how much is enough are changing. People are looking for better answers.  

Of course, members of the Silent Generation and Greatest Generations (born before 1946) have very different world-views from their kids (born between 1946 and 1964.)   At the risk of gross exaggeration and blatant stereotyping.. most people who grew up during the hardships and uncertainty of the Depression and WW2 see the future security mostly in terms of eliminating debt and staying self-reliant. Avoid situations where others can exercise control. Don’t owe anything to anyone. Pay off the mortgage. Live frugally on a fixed income.

(One of the hallmarks of aging is the increasing need most of us have to control our immediate surroundings and everyday lives. Precisely because things feel more out of control as the realities of age unfold.)

Younger, but still getting older, baby-boomers who grew up during the longest period of economic expansion the planet has ever seen, share the same illusion that control over the vagaries of life is possible, but they tend to grok the notion of future security in decidedly different ways.

We all know someone grappling with a version of the following:  

Mom and Dad paid off their mortgage. They have a modest retirement nest egg. Social security. Small pension. Medicare. But what happens as they age? Knees start to go. Stairs get harder. Frequent health challenges arise. Kids and grandkids are scattered across the country.  Life continues to happen and that small, perfect world they envisioned at 65 is suddenly challenged in ways they never really could have imagined back then.

As more boomers watch more of their elderly parents struggle and have a chance  really see what life planning at 65 really looks like twenty or thirty years down the road they are reframing their notions about the future:  Instead of using the assumption that once everything is paid off and a little nest egg of security and comfort is locked in, nothing is ever going to change,  planning for an extended future should be based on the knowledge that things will certainly change.  In ways we don’t expect and cannot know ahead of time.  And the best way to retain as much control as possible is to create options that  adjust to whatever challenges life decides to dish out.

So cue the notion of reverse mortgages. Next week we’ll look at some of the ways they can help you stay flexible and better prepared to meet the changes ahead.