Monthly Archives: October 2019

Fish in Water

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It’s tough to drill down on any topic in 450 words. Let alone write something intelligible enough to help the average person understand something as complicated as the real estate market. Sometimes I feel like a fish struggling to explain the concept of water.

Even if most people prefer answers served up in big bold news font, there’s no one message about “the market” that’s capable of being translated correctly into everyone’s personal language. The essence of the market is defined by how every home compares to every other home. And no one on the planet has enough neurons to wrap their heads completely around that concept.

Everyone lives in a different place (home), and is at a different place (stage) in their lives. All I can do is draw a rudimentary map that allows folks to triangulate some notion of where they might be in relation to everyone else. Since the world keeps changing, the map is always in a steady state of flux.

The key to real estate is not so much understanding where the market is. It’s more about understanding where you are in relation to it. Here are a few hints that might prove helpful when reading things about real estate in the future:

Don’t get freaked out when the median price fluctuates 3-6% in a month. That kind of shift up or down is normal. Every month.

There’s no such thing as a national or statewide real estate “market”. There’s not even much of a regional one either, except to identify broad trends and cycles over time.

Even within the County there are significant differences between the real estate market in the cities of Santa Cruz and Watsonville, or San Lorenzo Valley, or even Aptos.

There are many submarkets within the County that aren’t geographical in nature. A different market for homes at $600K than for those listed at $1.6M. A different market for single level homes vs multi-storied homes. Rural settings vs those close-in neighborhoods. Condos vs. single family residences. Etc., etc.

Almost all statistical data in newspapers is trailing information. The sold statistics you’ll read for November are a snapshot of what willing Buyers and Sellers agreed to do back in August or September when they opened up 30-60 day escrows.

Buyers interpret the same exact information differently than Sellers do. Always have, always will. When it comes to people who are trying to both buy and sell in the same local market, juggling those two opposing viewpoints during the same transition can be a monumental task.

We’ll stop there and continue next week…

Profiling the Pod People

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Continuing the conversation…Who’s selling homes these days and where are they going? And who’s buying homes and where are they coming from? This thread started a few weeks back when we were musing about increasing concerns around more Buyers immigrating into the County from elsewhere.

More than a few locals are worried that the unique character of Santa Cruz is changing. And that somehow, some way, we are getting close to a tipping point where whatever it is that makes our Santa Cruz-ness unique is in danger of being lost.

For some, it almost feels like a remake of the “Invasion of the Body Snatchers”. Every night after they go to sleep a few more of their longtime friends and neighbors seem to disappear and get mysteriously replaced by alien “pod” people who look like them, but don’t quite act like them.

We’ve already talked about the people selling their homes and where most are going. Typically they’re aging baby-boomers or the aging parents of aging baby-boomers moving to gray-er pastures outside of California. But what about those Buyers?

It’s tempting, but is it fair to lump all those recent arrivals under the heading of “carpetbaggers”. Can we simply assume that all our Buyers are all rich, Silicon Valley techie- types (because who else can afford a house here) who are intent on buying up all of the real estate in Santa Cruz to use as privileged second homes?

There’s a disconnect of course… When it comes time to Sell, many of those same locals who’ve been worried about Santa Cruz’ changing character seem to flip and start fantasizing about the rich Silicon Valley techie- types who are going to plunk down all-cash offers on their homes. I don’t think I’ve ever seen a Seller significantly discount their price so that more deserving locals could afford to buy their home.

And in all likelihood, people already living in some of those other States where our Sellers are going, see them as rich carpetbaggers from California coming to wreak havoc on the local vibe and drive up real estate prices. That’s an old story from a number of different migrations out of California in decades past.

So what is the profile of people buying in Santa Cruz these days? They tend to be younger
than people who are selling. Most are between 35-65 years old. And it’s true that the majority are coming from over-the-hill – mostly Santa Clara and San Mateo Counties and San Francisco and Marin. But they aren’t all or even mostly wealthy techi- types intent on buying second homes where they can come on weekends and make the line-ups more crowded for local surfers..

Next week we’ll break down the typical Buyer.

Where oh Where?

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Continuing the conversation…Who’s selling homes in Santa Cruz and where are they going? And who’s buying them and where are they coming from? Last week we talked about the average seller profile. Most are aging baby boomers or the aging parents of aging baby boomers.

Common reasons for selling include:

Estate sales occurring as people living into their 80s and 90s pass away (we’re all going to get there). The desire to downsize and make proactive choices well ahead of the aging curve. Or the need to react a little too late
to specific challenges that arise due to aging (health concerns, mobility issues, passing
of a spouse, proximity to family, financial challenges etc.)

Here are their common destinations:

Local: Not so much. There’s a lack of single- level condos or townhomes out there. They weren’t making many during the 1980s and ‘90s when builders were stacking as much multi-story square footage as possible on those relatively small infill parcels.

And there’s no doubt that the waiting list for Dominican Oaks is expanding, but there aren’t enough residences there to meet current demand, and there aren’t many other desirable assisted living choices in the County either.

In theory, we should be seeing lots of local sellers transitioning into smaller single level homes right here in sunny Santa Cruz. But in practice, people are finding in-town move- downs difficult to accomplish in a place where there just aren’t enough smaller, single level homes offered at prices that allow them to transfer their property taxes and/or free up enough equity to live off of.

In State: Not so much either. In the old days, the Sierras were a destination of choice for aging baby-boomers. These days, increasing fears about fire danger and the perceived lack of access to medical care are limiting the silver-haired migration to Gold Country. The numbers would increase if property tax transfers were available in all counties, but since the recent state measure failed to pass, they won’t grow any time soon.

Out of State: The majority of sellers are moving out of California. There’s not one preferred destination for their new homes away from home, but Oregon, Washington, Nevada all rank high on the list. Throw in Idaho as well, and a little New Mexico and Texas on top. Most of those places have tax structures that serve as justification for the move. But the real similarity is that the cost of real estate and cost of living are both a lot lower than they are here.

That’s the quick overview on the selling side of the equation. Next week, let’s look at the buyers and where they are coming from.

Drilling Down and the Three D’s

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Continuing the conversation…drilling down on the question lots of locals have been asking lately: Who is it that’s selling homes here and where are they going? And who is buying them and where are they coming from? First, let’s look at the seller side of the equation:

If there is such a thing as an “average seller” these days, the description would go something like this: most are between 60 and 90 years old and qualify as either aging baby- boomers or the aging parent(s) of aging baby- boomers. They reflect a huge demographic shift that’s happening nationwide as more people are living longer and wrestling with questions they never had to consider before.

In order to sell a house, people also have to own one first. And in a place where the median price fluctuates just above or below the $900,000 mark, it’s not surprising that most sellers are folks who’ve been alive long enough to gather the resources necessary to afford one in the first place.

People don’t sell homes on a whim. The process is simply too hard and requires
too much emotional energy to be a “sport”. Homes are people’s biggest asset and the all- important centering places for privacy, safety and comfort in their lives. Selling is almost never an end in itself. It is usually just one step in a much larger life transition sellers are going through.

These days, it’s not unusual to hear agents talk about the “Three Ds” as the driving forces behind the market. That’s real estate shorthand for Death, Divorce and Downsizing – things that definitely qualify as big life transitions, particularly for folks who find themselves heading into the last third of their lives.

I haven’t noticed an increase in divorce-driven home sales but then, people splitting up has always been a steady source of supply for the market. I also haven’t noticed fewer marriages ending recently. As far as death-driven sales? Since more homeowners are living into their 80s and 90s, it stands to reason that a higher percentage of the homes selling are estate sales.

Downsizing is by far the most significant factor for the majority of sellers in Santa Cruz. And before I simplify it too much, it bears repeating that “downsizing” has become a cultural meme for lots of different considerations that people past the age of 60 have: empty nesting, health challenges, retirement planning, tax consequences, estate planning and the desire for less maintenance and fewer stairs (to name a few).

In other words, it’s complicated. That’s who is selling in Santa Cruz these days…next week we’ll talk about where they are going.

Another Invasion of the Body-Snatchers?

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After my recent series detailing the growth of Silicon Valley and how it has affected the Santa Cruz real estate market over the last 30 years, a number of people reached out to ask different versions of the same question: Who exactly is selling their homes these days and where are they going? And who is buying those homes and where are they coming from?

Great question. Here’s a very simple way to think about the big picture: By far, the majority of people selling their homes are older folks who are moving elsewhere, out of Santa Cruz. And also by far, the majority of people buying those homes are younger people coming from somewhere else, outside of Santa Cruz. (Most, but not all, from counties clustered in and around the Bay area.)

Whether some locals want to acknowledge it or not, this has been true for some time. But it has never been more true than it’s been these last five or six years during the long run up in appreciation our market has experienced. In other words, the pace of our outward/inward migration has accelerated since 2013 due to rising prices, the changing nature of the market and, I would add, the inevitable aging of the local population.

I coined my own pet term for this all a while back. I call it the Santa Cruz version of Invasion of the Body Snatchers, because sometimes it feels like every night after we go to sleep, a few more of our neighbors are mysteriously scooped up and replaced by alien “pod” people before we wake up the next morning.

They kind of look the same but they’re not. And as the fear goes, almost overnight, the character of Santa Cruz is being altered in profound ways beneath the surface. We can’t quite pinpoint it exactly but one day we’ll end up reaching a critical mass/inflection point that robs us of our inherent Santa Cruz-ness.

Summoning up a vision of Kevin McCarthy frantically screaming “You’re next! You’re next!” at oblivious passersby, in the original movie version of Body Snatchers, as a metaphor for the anti-Communist, anti- McCarthy-ite paranoias of the 1950s may be a bit of overkill here. Judging by some of the occasional hate mail I get blaming me for encouraging/letting Silicon Valley people buy houses here, maybe not.

All I can say to those distraught people who want to retroactively erect a wall at the top of the Summit, or to local culture-change deniers that insist everything should stay the same is: that ship has sailed. We are already living after the pod people have arrived.