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.