Steve Johnson

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.'

Santa Cruz Real Estate Market

Mid Year Forecast

2009

Over the last few months, most experts have been predicting that the bottom of the Real Estate market will happen late 2009 or early 2010. There are several things that have to happen if a recovery is to occur. First mortgage interest rates have to remain low. The lower end of the real estate market is currently being fueled by low interest rates that are allowing first time homebuyers and investors to pick up properties that are 40% to 50% off their market high prices. As I mentioned in my earlier blog, we are seeing multiple bids for these properties. But we will need on-going low mortgage interest rates to continue to fuel our recovery.

But for a full recovery to happen in our real estate market, we also need to clear out the inventory of bank owned properties that are on the market. These bank owned properties are a result of homeowners losing their homes in a foreclosure action by the banks. We have seen over the last year how property values have continued to fall with the rise of foreclosure sales. The result is a lack of confidence and stability in the market. Thus having a major negative physiological cloud on the market. People are afraid to buy due to the uncertainly of their jobs status. Homeowners are seeing a major decrease in wealth and resulting home equity credits lines. Buyers are uncertain whether to buy now and risk further downturns in the market.

So where are we at today with foreclosure market? The chart below tells us several important messages about our future.

The blue bars represent the number (200) of Bank Owned properties that are not on the market. This is the shadow inventory that the bank is holding on, so as to not flood the market with inventory and drive home prices even lower.

The red bars represent the number (327) of homes that currently scheduled for a foreclosure auction. Keep in mind that the banks will end up owning the majority of these homes. In fact the Banks buy 99% of the homes that are sold at a foreclosure auction.

The yellow bars represent the number (543) of homes that have a Notice of Default. Again the majority of these homes will end up being foreclosed on in the months to come.

Based on this information, we can conclude the following: The banks are holding at least five months of home sales inventory in Santa Cruz County at this time. This is based on the fact we are currently selling about 100 homes a month on the MLS, and the Banks have a shadow inventory of 200 Bank Owned properties not on the market and will be getting another 300 plus homes through the scheduled foreclosure auctions. On top of that, we have 543 homes with a Notice of Default and a good number of these will end up as Bank Owned properties. Keep in mind the Banks will not release their entire shadow inventory on the market at one time. So we will be seeing an ongoing supply of Bank Owned properties on the market for sometime to come. Given the volume of the Bank Owned inventory, we will not see the bottom of the market until at least sometime next year and maybe beyond that.

Steve Johnson

Monterey Bay Properties

steve.johnson@baymoon.com

(831) 588 0254

www.rejohnson.bz

Santa Cruz County Inventory

May 12^th 2009

These are interesting times in Santa Cruz County with regards to real estate. This is the time of year that Buyers get real active in finding the right property to purchase. Our high season for local real estate happens like the farming season for our fruits and vegetables, from May to September is our busiest time of the year. But this season we have a different pattern as compared to previous seasons.

If you look at the graft below, you will see a snapshot of the housing inventory of Santa Cruz County and there are several market trends that it reveals. This graft shows the number of all active and pending homes in each price range across Santa Cruz County.

First, as you can see at the lower end of the market there are a lot more pending homes verses actives. With lower inventories, if you're a Buyer in this market, you are facing multiple bidders. These properties are for the most part bank owned or short sale properties and most of the potential buyers are first homebuyers or investors. In summary, we have more buyers than available inventory in this market segment.

In the middle and upper segments of the market, you can see we have the opposite situation. We have a lot inventory and fewer buyers. Unless it's a prime beach property that is priced below market, we are not seeing multiple bids. The seasonal demand for beach homes is still a strong driving force and therefore one of the bigger demands in this market segment. In comparison, country homes are being harder hit with much lower demand and higher inventory. Thus Buyers are in a very strong position in this market segment and this pattern will continue through out the year.

So what are the market trends we are seeing:

1. This is still a strong Buyers market, but Buyers will face more competition at the lower end of the market.
2. Beach homes will be in greater demand this spring and summer season with lower prices.
3. Country home inventory is much greater than market demand, making it great time to buy a country home.
4. Bank owned properties and short sales will still be have a major impact on the market for some time to come. (Especially at the lower end of the market)
5. With so much activity and demand at the lower end of the market, the median price of homes will continue to be lower as compared to past years.
6. Overall still one of the strongest buyer markets with near all time low interest rates and growing inventory.

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