Steve Johnson

It was just a few years ago, we rarely saw homes being foreclosed by banks and later sold by banks on the MLS as REOs (Bank Owned Properties). On top of that, Short Sales were unheard of in those markets of yester year. However in today's market, a good percentage of homes are REOs or Short Sales and they all have one thing in common. These properties are bought and sold by banks or the banks have final approval of the property sale.

As of last month, banks controlled over 50% of the real estate transactions in Santa Cruz County. For the most part, Bank control of transactions and inventory is not good for the market. These distress properties are some times neglected, abandoned and stripped, resulting in lower property values when they are sold. Recently some cities have required banks to maintain properties they own and this has helped. However the over all impact of bank owned properties has had a major negative effect on home values.

With the current national trend of ten percent of homeowners being delinquent on their mortgage payment, we are sure to see a continued trend of bank controlled transactions and inventory. Both State and Federal governments have tried to stem this tide with loan modification programs and foreclosure moratoriums, but these programs have had very little effect to date. So unless there is a new approach to this problem, it will take several years to reduce the number of bank controlled properties and return to a market that is controlled by home owners and buyers. The good news is that there are alternative solutions that are being considered. I'll go into more detail on these alternative solutions in my next blog.

Bank Foreclosure (Homeowner is unable to make mortgage payment, Banks sells home through a foreclosure auction process. In most cases the Bank buy back the home at the auction for the value of the mortgage.)

REO ( After bank purchase of the home via foreclosure process, Bank sells the home on the open market through MLS or at public auction)

Short Sale (Homeowner owns home with a bank mortgage that is greater than the properties market value. Homeowner with Bank approval can sell home short of the value of the mortgage. Results in, Homeowner loses equity and Bank takes a loss on the mortgage.

As we near the end of 2009, there are some trends that have developed in the Santa Cruz Real Estate Market. For example, the low-end of our market has been on fire. We are seeing multiple bids on homes priced less than $500k. This is a result of several different factors, first is the availability of loan programs thru FHA, Freddie Mac, and Fannie Mae, second is the First Time Buyers $8000 credit, lastly a steady volume of bank owned and short sale properties with low prices. As seen by the chart below we have more property pendings that available home inventory. Thus we are seeing some price stabilization at the lower end of the market.

In the middle section of the market (Homes between $500k to $1m) there is better balance between inventory and pendings. Prices have begun to stabilize in this marketSegment. If a property is priced right in this market segment, it will sell fairly quickly. Again low interest rates, lower than usual inventory and lower prices are helping. It is a great time for Buyers that are moving up or scaling down. Certainly short sales and bank owned properties have had an impact on lowering prices. Thus Buyers can see some real value in this market segment.

The high-end of the market is really struggling at this time. This market segment has not been hit as hard with bank owned properties or short sales as of yet. But we are starting to see some downward pricing adjustments. This is due to several factors. One, financing is more difficult for high-end homes, second we have too much inventory, and lastly we are starting to see more short sales and bank owned properties.In the greater Bay area, high-end homes in the Hillsborough and Atherton have fallen in value by 14%. In our area, beach properties have not been hit as hard, but high-end country properties are being hit pretty hard. It is a great time for an all cash buyer in this market segment.

This is just a quick update on where we are with Notice of Defaults in the greater Santa Cruz area. As you can see by the graph below, Notice of Defaults have been bouncing between 150 and 200 month since the beginning of the year. Thus we have not seen a real improvement in the market. In the meantime, the shadow inventory that the banks are holding is continuing to grow. So we are going to continue to see the impact of distressed properties on the market for some time to come. Hopefully we will see a downward trend in the Notice of Defaults next year and some momentum to a normal market by the end of 2010. But for now, a great time for Buyers with historically low interest rates and falling house prices.

Santa Cruz Home Bubble Prices

October 2009

As we move to the end of 2009, many home Sellers and Buyers are wondering what direction home values are going ? As I have mentioned on previous blogs, we are still seeing a constant stream of foreclosures with unemployment and negative equity the driving reasons. So until we see unemployment improved and home prices stabilize, there will not be much improvement.

So where are we now ? As you can see in the graft below, homes in the Watsonville area have taken the biggest equity hit with median home prices off 57% from the peak of the market in 2005. In fact, Watsonville home prices are now below 2001 prices. In contrast, the median home price in the areas closer to the ocean like Rio Del Mar, Santa Cruz and Capitola are seeing median home prices off around 27% from the peak of the market. Home prices in these areas are about where they were in 2003.

If you are a buyer or seller in this market, this a good overall gauge of where property values are currently. However you do have to take into account that homes that right on the beach or have great beach access have been hit less. The market for these high-end beach homes have dropped off, but when they do sell its usually at prices less than 20% off the peak of the market.

Can we expect the home prices to keep dropping ? In the short term the answer is yes. This is due to the fact that banks are still releasing homes from their foreclosure inventory and we are also entering our seasonal slowest part of the year when prices normally are at there lowest. So with mortgage interest rates near record lows, home prices going lower, talk of another buyer incentive program by the government, it is a great time for buyers.

Steve Johnson

Monterey Bay Properties

(831) 588 0254

Santa Cruz Beach Home Values

Like most areas through out the United States, Santa Cruz real estate has had its fair share of lost value. However some areas in Santa Cruz County like the beach areas have not been hit as hard. For example the greater Watsonville and south county area has been hit a lot harder than the beach areas of Santa Cruz. This is due in part to the higher demand for beach properties and a scarcer inventory of beach homes. But another reason is that there are a lot less bank owned properties for sale in the beach areas as compared to the Watsonville and south county area as seen the chart below.

Overall the Bank Owned Properties represented about 30% of the homes sold thru the MLS in June. But the bulk of those Bank Owned properties sales occurred in the Watsonville and Santa Cruz City areas and most of these properties were lower priced homes and condos. As seen in the chart below, last month 70% of the properties that sold in Watsonville were Bank Owned Properties as compared to Santa Cruz, which had 18%. In comparison beach areas like Rio Del Mar and Capitola have had around only around 10%, as Bank Owned and most of those are condos.

Thus as we enter our busiest time of the year for buying a beach home, most Beach Home Buyers are some what disappointed in the drop in prices of beach homes. Many Beach Home Buyers are expecting the same 40% drop in property values that has happened in the interior areas of the county. As the chart below shows, you can see that beach area homes have seen a major drop in prices. But for several reasons, Santa Cruz beach homes have not dropped as much as other areas.

First there is a much smaller of number of financially distressed properties in the beach areas as compared to the other areas of the county, thus having a lower impact on the home values in the beach areas. Second the available inventory of beach homes is much lower than usual this year, and this is due to the fact many Beach Sellers are waiting out this bad market for a better time to sell. Third there is a higher market demand for beach homes, with a lot of out of area Beach Buyers looking for a second vacation home. People just love to live by the beach and have an ocean view.

So there is a lot of good news for Beach Buyers, property values are down and there are some pretty good buys out there. Plus mortgage rates are again near an all time low. If you are a Beach Home Seller there is usually a compelling reason to be selling in this market and this can be good news to the Beach Home Buyer. Lastly when this market turns and it will, beach homes will have the fastest and highest appreciation rate when we recover. As the old saying goes ‘They only make so much beach property and everyone would love to have one.'