Fall is in full swing bringing beautiful sunsets, cool mornings and a welcomed sense of calm. I don’t know about you, but I’m digging it. Pumpkin spice everything and fall decorating trends aside, the hot housing flavor is something every house hunter can love: a price discount.
In September as the nation’s economic woes lowered consumer confidence, faith in housing weakened as well. Nearly all of the data supports a continued slow down in the Santa Cruz County real estate market.
Before I dig into the meaty analysis, here are the highlights:
The median sales price for single family homes decreased by 13% on a year-over-year basis and 10% on a month-over-month basis in September.
Only 27% of homes sold above their asking price in September, with sellers receiving an average of 2% below asking price.
On average single family homes continue to sell under asking price for 13 months in a row
The median time on market has continued to climb to an average of 48 days in September (compared to 30 in August).
Rates for a 30 year fixed mortgage are nearing three-year lows - dropping to 3.46%. A perfect chance for homebuyers to increase their purchasing power.
Home Sales Drop Off Steeply
Homebuyers continue to sit on the sidelines as home sales dipped despite lower interest rates.
Year to date there have been 1232 single family home sales in Santa Cruz County. This is 9% less than the same time period in 2018 and 4% less than 2017.
Fewer sales are undoubtedly in part due to lower inventory of homes for sale. Throughout the year and into September the number of homes for sale on the Multiple Listing Service (MLS) continued to drop. In September inventory was 6% less than September 2018.
What gives with the low inventory? In 2018 and early this year many industry experts were prognosticating that we would see an increase in inventory levels.
One culprit seems to be that seniors are deciding, more than ever, to stay in their current homes. This shouldn’t come as much of a surprise, Baby Boomers are doing what they’ve said they are going to do for years. Another generation, Gen Xers, who took one of the biggest hits in the recession are also staying in place. Instead of moving they are choosing to remodel their homes to meet their needs as best they can. Neither generation is adding to the existing supply of homes for sale. It is estimated that nationwide this near-gridlock is keeping about 1.6 million homes of the market. Wowza!
As a result buyers looking to purchase their next home have faced challenges of limited inventory and a competitive market in recent years - but that’s shifting, at least the competitive part. More and more buyers are choosing to wait on the sidelines for various reasons despite low interest rates. Some have been priced out, others can’t find a home that they love and others believe the market may have peaked and are waiting for the other shoe to drop. Sellers are of course starting to feel the discomfort of decreasing buyer demand. Homes that drew seven to nine offers last year are only seeing two or three now.
Median Prices Continue To Cool
Increasing buyer lethargy has been dampening price growth this year and September was no different. The median price of single family homes in Santa Cruz County continued to drop for the fifth consecutive month after reaching an all-time peak in April at $977,750. Home prices remained at budget-busting levels for many buyers though. The median sales price in September was $797,000, down 10% from August and 13% from September 2018.
It seems the stagnant pace of home buying in recent months - amid some economic uncertainty - has made homeowners painfully aware the market is cooling and prices aren’t appreciating like they once were.
When I filled my trusty spreadsheet with data analyzed from the MLS on the share of homes with price cuts, I found an ever-increasing share of homes in Santa Cruz County are reducing their prices before selling. Of the homes that sold in September, a whopping 43% of them had price reductions - compared to 33% in August and September 2018. The average price reduction in September was by 9%. Slashing listing prices is still no guarantee that house hunters will bite.
And What About A Recession
Another cause of the slowing in the market not mentioned earlier is the recession everyone keeps speculating about and experts have mixed views on. Some economists believe that the nation’s next recession will show its face as early as 2020 while others believe one is nowhere in sight. As conversations about a possible recession circulate, a survey by realtor.com reveals that homebuyers are choosing to postpone their search until the storm passes.
This could be a chicken and egg scenario - increasing anxieties over a recession could be the very cause of the next recession. As anxiety about money grows, consumer confidence often plummets.
The good news is that nearly half of those surveyed feel that the next recession will not be as catastrophic as it was in 2008. The next recession is expected to be driven by factors outside of real estate, such as a prolonged trade war, cutbacks in corporate spending or contagion from a European recession. Unlike the Great Recession, mortgage guidelines are more disciplined and regulated, which will hopefully provide a stronger footing for housing.
As things shake out with recession fears, there is the potential for prices to tick up again, certainly if mortgage rates remain low (which they are expected to do for awhile).
What Does It All Mean For You?
Spring and summer are traditionally thought of as the busiest times in real estate. Market trends this year beg the question, has the market indeed peaked? Is this a blip? Is it time to get off the fence as a seller or a buyer? Let’s find out what the market means for your real estate goals. Coffee date? Our treat.
The year is winding down as we enter the fourth quarter, but we are here for every last second 2019 has to offer and we can’t wait for what’s in store for our clients. There is something extra special about being able to help buyers and sellers close on their homes just in time for the holidays. We’re ready when you are!