Can you guess what the median price of homes did in Santa Cruz County in June?
Home sales remained relatively muted in the county at the end of the spring and beginning of the summer home buying season. Most signs tell us that softening buyer demand continues to challenge the market this year.
In late 2018, the housing market lost steam as interest rates rose, and new construction, home sales and home price appreciation all decelerated. Mortgage interest rates have fallen this year, but that hasn’t renewed much action in the housing market, and things are unlikely to turn around for the remainder of the year as concerns about the economy continue to grow.
A LOOK AT THE MARKET STATS
Total closed sales from January 1st through June 30th of existing single-family homes in Santa Cruz County totaled 741 at the end of June according to data from MLS Listings.. These sales figures are down 17% compared to where the market was in 2018 for the same time period.
This may come as a bit of a shock given the general feel of the market is that buyer demand is still strong. Closed sales were down perhaps in part due to the drop in mortgage rates seen at the end of March. That sounds counter intuitive doesn’t it? It may be taking the average escrow longer to close due to a higher demand for refinances. First-hand experience and conversations with lenders in the area recently have confirmed that many banks are currently a little overwhelmed and under-staffed. With mortgage rates having fallen so sharply in recent months there has been a boom in both refinance and purchase applications.
Banks’ capacities are not the only thing slowing the market this summer. “Weak buyer demand, largely prompted by elevated home prices, is playing a role in the softening housing market,” said California Association of Realtors President Jared Martin. “However with low interest rates, cooling competition and an increase in homes to choose from buyers can take advantage of a more balanced housing market.”
As demand continued to ease, so too have prices have softened. The median sales price for single family homes in June was $899,000 down 5.3% month-over-month and down 3.5% compared to June 2018. This is the second month in a row that the median price has decreased after hitting an all-time high in April. It seems that the median price may have reached its annual peak earlier than expected thanks to a mismatch of available inventory and buyer demand. This discrepancy could very well be a telltale of an impending market shift which could affect homebuyers into 2020. So far there has been a relatively lackluster response from buyers to low mortgage rates.
The average number of days it took to sell a home in Santa Cruz County increased in June, yet another indicator of cooling buyer demand. The average home was on the market for 31 days in June before entering into contract. This is 11% (or 3 days) longer than June 2018 and 3% (or 1 day) longer than it took in May.
Homes aren’t necessarily taking longer to sell due to an increase in inventory and homebuyers having more to choose from. At the end of June 1172 single family homes had been listed for sale in Santa Cruz County on the Multiple Listing Service (MLS Listings) for the year. This is only 1% more than we had for the same time period in 2018 and is far from enough to provide a much-needed boost in supply of homes for sale. Buyer demand being higher than the supply of homes for sale continues to push buyers out of the market.
With inventory ever so slowly creeping up and demand tapering off we have reached 2.7 months of inventory - some of the highest the market has seen in recent years. What months of inventory means is that if no new listings come to the market the existing ones will be gobbled up by buyers in that number of months. Historically anything under 4 months is a sellers’ market, between 4 and 6 months is in relative balance, and anything above 6 months is a buyers’ market. Higher months of inventory often affords buyers the ability to negotiate more.
If inventory continues to grow, buyers will see more options and should gain more bargaining power. In just a few months, however, homebuyers could experience a decline in the number of homes for sale which could lead to the return of bidding wars, stronger appreciation and faster sales. At the end of June 1172 homes were listed for sale. That total has the potential to flatten over the next three months and could hit its first decline in October 2019.
It is hard to pinpoint exactly why homeowners aren’t putting their properties on the market. It is likely a combination of sliding consumer confidence, rate-lock, lack of replacement properties to move into, higher taxes and the fact that older generations are choosing to age in place.
According to a recent study from Freddie Mac, an increasing number of seniors are choosing to age in place, which has partly contributed to the supply shortage that is slowing the housing market. The study found that seniors born after 1931 are deciding to stay in their homes longer than the previous generations, shutting many first-time buyers, who happen to be Millennials, out of the housing market.
The number of homes occupied by seniors is only expected to grow as the senior population increases and the barriers to aging in place are reduced. This emphasizes the importance of addressing the roadblocks to building new housing to address the long-term housing demand.
But thats a whole other can of worms, so lets get back to today’s waning demand and wrap up our look at the housing market statistics from June.
The sales-price-to list-price ratio was 98.9% in June. This means that homes were selling for a little over 1% below the asking price. In June 2018 homes were selling for 1% above the asking price on average. This ratio is an indicator that shows us the negotiation power of homebuyers and sellers under current market conditions. It is calculated by dividing the final sales price of a property by its asking price. A ratio of 100% or more means a property sold for more than its asking price and below 100% indicates that is sold below.
So what do all of the market statistics tell us today? Despite low interest rates, buyer demand is almost without a doubt cooling. Buyers have become more cautious and are gradually regaining a little traction and leverage in the market. As for sellers, they’re going to have to price their homes more strategically and exercise a little more patience.