March Market Musings

As the subprime situation worsens statewide, somehow Santa Cruz County has managed to avoid the worst of it. However, the average and median home price dipped below $600,000 for the first time in years. While on the face of things this is an 18% drop in prices, the reality is more complex.

During most of 2007, sales in the million plus price range remained strong and steady, accounting for about 25% of all home sales. Similarly in 2007, homes priced under $500,000 accounted for only about 15%.

In contrast, this year has started out quite differently: about 33% of home sales in Santa Cruz County were sold for less than $500,000, while homes over a million dollars accounted for only 14%.

This dramatic change in the sales mix is what caused the average price to fall 18%. Homes haven't dropped 18% in value. In fact, over the last 4 months, most homes in the San Lorenzo Valley have sold for about 95% of the list price.

Here's where the difficulties lie: areas that experienced rapid building, sales and expansion, such as the Watsonville area and much of the Central Valley, where as many as 1% of homes have some sort of a foreclosure filing. There is no question that prices and sales are dramatically affected by the sub-prime loans, defaults and foreclosures. Statewide, home sales have fallen dramatically.

Many mortgage professionals draw sharp distinctions between geographic areas. One of the bix six lenders is in the process of re-evaluating the Santa Cruz County market as stable (up from soft); at the same time they expect to downgrade Santa Clara and Monterey Counties. Borrowers nowdays need to put more money into the purchase, have solid credit history, and provide better documentation. Sounds like good business practice to me.

Here in the San Lorenzo Valley, home values in each town have been affected differently. There are a few distress sales where the savvy buyer can negotiate a low purchase price and lock in today's low interest rates. A few homes are being sold at auctions. But the majority of homeowners here are not distressed: they are selling for the normal reasons. Well-priced homes in good condition with appealing features often sell within a matter of a month or two, often at or quite near the asking price.