Supply and Demand in Santa Cruz Real Estate Market

So far 2012 has shown a continued trend in local real estate market of increased buyer demand and limited supply. As in any market, this puts upward pressure on prices. In many areas of Santa Cruz County we are already seeing increases in current prices buyers are offering over comparable properties from just 6 months ago. Limited inventory combined with historic low interest rates has created a sense of urgency for many buyers who are worried they may get priced out again if prices and/or rates go up. Buyers are still looking for good properties in good areas with good prices. However, they are jumping quick once they find it. We are seeing many instances of multiple offers pushing prices over the list price IF the property was priced well to begin with. Properties that are in less desirable areas, in poor condition, or are overpriced are still taking time to sell, and often for an amount below list prices. Therefore, sellers are advised to invest the time to properly prepare their home for showings and to be thoughtful about an appropriate list price.

Here are some highlights for the end of April 2012 provided by Chris Trapani, founder of Sereno Group, and comparing that data over the last 2 years. Here is a link for the GRAPHS- market data April 2012 Santa Cruz

1.Median Price- The Median Price settled in at $415,000 in April, down slightly from the previous month ($443,000) but higher than April of last year ($404,000). The two year average Median stands at an even $435,000.

2. Supply & Demand (Units)- What we are measuring in each of these categories is the two year average moving trend; The two year trend line for the following categories, For Sale (supply/inventory), Under Contract (pending sales) and Sold (closed escrows), are as follows – For Sale/inventory has remained historically low in early 2012 contributing to a two year downward trend of -28%. The number of under contract properties (pending sales) trending up more significantly +46% and the sold/closed escrows up positively +6%. The number of pending/closed sales remains strong in comparison to the same time period for the past two years: April 2012/250 pendings and 202 closed;April 2011/170 pendings and 175 closed and April 2010/197 pendings and 164 closings.

3.Month’s Supply of Inventory (MSI) & Days on Market- The overall Months Supply of Inventory (months of inventory available based on the total existing supply divided by the rate of sales) increased only slightly in April to end @ 2.8 months supply, up from last month’s figure of 2.3 months (considerably less, however, than April 2011’/6.5 month’s supply and also less than April of two years ago: 5.6 month’s supply). Days on market has settled down into the 60 day range over the past two months, a two year low. The Month’s Supply was a key indicator of market pressure in 2011 and has become a more significant factor in leading to appreciation in many segments throughout the Bay Area so far this year. There remains a significant shortage of inventory and not nearly enough supply to meet high buyer demand that has sustained since January of this year. This has led to increased buyer competition and multiple offers throughout the valley and bay area. Properties from the entry level price ranges in all areas of Santa Cruz, to a number of upper end listings on the Coast and in areas like Los Altos Hills, Palo Alto and further up the Peninsula continue to receive high interest and often, multiple offers. (one Los Altos Hills property listed at $3.45M which recently received 11 offers).

4.Sales Absorption- Measuring the two year average trend line in the following categories shows under contract properties climbing to ever dizzying heights (+124%) and number of closed/sold escrows also rockets up further (+55%) over the past two years (both figures showing increasing strength when compared to any month over the past two or more years). The Percent Under Contract remains a very telling statistic of the current market condition (at a five+ year high)….25% of the active properties/listings were under contract at the end of April, which is down from 28% in March and up from the 22% mark in February (as a further comparison April 2011/13% and April 2010/14%). This percent under contract figure is another key marker to pay attention to as the two year average is at 14% and we have been north of this average for the past 4 months in a row. As we have discussed, this is the highest percentage of active listings we have seen under contract in well over 5 years. Additionally, it has been suggested that 25% PUC is the mark of equilibrium in the Bay Area real estate where the market is no longer slanted in favor of the buyer or seller. We crossed this (25%) threshold in March of this year and are holding steady at this level in April.

As we predicted in 2010 and throughout 2011, Month’s Supply of Inventory and the Percent Under Contract proved to be key indicators to understanding and anticipating market trends. The Month’s Supply began 2012 at a five plus year low and now stands at the lowest point since we have been measuring this statistic over the past 6 years. At the same time, the Percent of active listings under contract has reached heights not seen in well over five years. Although ever so slightly, the Month’s Supply of Inventory did increase in a few micro markets when comparing March vs. April of this year (areas such as Aptos 2.2 to 2.5MSI, Capitola 2.4 to 2.5MSI, Mountain View 18 days to 21 days MSI, Los Altos (.9 MSI) 27 days to 1.4 MSI) whereas areas such as Redwood City continued to tighten further (Redwood City decreased from 1.3 in March to 1.1 MSI in April of this year). Any relief in the MSI was hardly enough to take steam out of the competition driving sales, however, it did result in some much needed inventory that started to work its way into the market.

While concerns surrounding the Euro and the resolution of sovereign debt throughout the region have resurfaced over the past few weeks, there continues to positive and optimistic news about tech, jobs and improvements concentrated mainly in Silicon Valley/Bay Area. We understand that these improvements have also begun to reach other markets around the Bay Area where demand and competition for housing has spread…There is also focus on the fact that Silicon Valley’s IPO activity is having a positive psychological and material impact on real estate and will continue to do so throughout this year, this will be propelled further by Facebook’s IPO which is scheduled for this week.

Leave a Reply

Your email address will not be published. Required fields are marked *