One thing’s for sure – it’s interesting times we live in. Whether you think the current housing crisis is the cause or a symptom of the economic meltdown in the United States and abroad, there’s no denying that there’s a great deal of uncertainty about how long this recession will last, how deep it will cut, and what this means for people looking to buy a house in Santa Cruz today.
I’ve said it several times in various postings to this blog, but I think it bears repeating: I think home prices in Santa Cruz county will continue to drop for the foreseeable future – and by that, I mean the rest of this year, at least. This is an opinion that is apparently not shared by some people, as we see buyers falling all over themselves (and other buyers) in a mad scramble for these “bargain” properties.
A few days ago, the Santa Cruz Sentinel ran a story about what homebuyers found at close to the median price of $380,000 in Santa Cruz County. I thought it was a pretty good read. I “watched” a lot of these properties come on the market and get sold, and it’s interesting to get a report from “inside” the transaction. One thing that was interesting is how many agents said their buyers received closing cost credit (typically in the 3-4% range) – I know from my own listings that this is common place, but you rarely see this in the “private remarks” section of the MLS. It’s an important bit of information – if a house is sold for $380,000 but the seller credited the buyer $12,000 for closing costs, the house really only sold for $368,000.
Another eyebrow-raiser were the anecdotes from the buyer’s Realtors, talking about the multiple offers. One agent told of showing her client “100 houses” (nice agent!) and writing up 15 offers, before finally being the winning bidder on a house on Grant Street in Santa Cruz for $412,500.
I myself have been there and seen this a lot of late. It’s not a new thing – as I mentioned a blog entry or two ago, this multiple-offer feeding-frenzy has been going on at least 18 months, I don’t see that it is more common today than it was a year or so ago – but perhaps it’s being talked about more in the media, as there is now more effort into talking up the economy rather than talking it down.
I work with a few buyers, although mostly my work these days is with the banks, listing and selling their REO assets here in Santa Cruz, but also in San Jose, Gilroy, Salinas, etc. I have some buyers who I’ve been working with for some time – we haven’t seen a hundred houses and we haven’t written 15 offers (yet!), but we’ve written up a good number of offers and haven’t yet been the winning bidder.
The day before yesterday, though, my client sent me a link to a listing which had “0 days” on market – meaning, it had popped up on the MLS only a few hours ago. I had seen it when it had come up (I send myself e-mails from my automated system for every bank-owned home that hits the market), but at the moment, I had a number of deadlines I was working to meet so I didn’t look at the particulars to see that it was really an incredible deal. When my client wrote me about it, I took a closer look. I wrote back – “Sounds like a winner, let’s go see it tomorrow, at the crack of dawn.”
The next morning at 8:30 AM, we went out to the property and took a peak. Stunningly cheap – priced well, well below market value. After only a couple of minutes at the property, we were already talking about writing it up. As fate would have it, though, it was about 4 hours more before we would actually send the offer in. And send it we did – at which point I called the listing agent, who informed me there had been four offers, all offers had submitted their “highest and best” offers, and that the bank had just chosen one of those buyers. All of that, in less than 24 hours.
It’s a bit of a mystery why a bank would price a home so low and then not give the home proper market exposure before accepting offers. Many of the banks that I work with have a 5 or 7 day minimum market time before they review offers, and that gives enough time to attract a good number of high-quality offers. Those that do not wait a few days before reviewing offers often leave quite a bit of money on the table, it seems to me.
But that’s nether here nor there. Whether a bank takes the first offer that comes along, or waits 7 days before reviewing offers, the point is this: it’s brutal out there for buyers of these “bargain” properties. The big question in my mind is, why is there such a clamor to buy something which in many cases is going to be considerably cheaper six months from now? What is driving everyone to fight tooth and nail for these properties which are still steadily dropping in value?
There’s any number of reasons, of course. Many buyers probably think that we are at the bottom of the market. You can’t time the market, after all – it’s impossible to say just when the bottom has been reached, and usually you can only tell when you are coming off it. Many buyers have just been itching to buy for years now, and finally, prices are “affordable” – and now, declining market be damned, they’re going to buy into the American Dream.
I have a theory, though, I’d like to run it by you. My theory is that there is actually very little for sale at the moment compared to the demand that’s out there. At any one time, there are only a few dozen properties listed for sale – not already in escrow – which are well priced for today’s market. Spying through the MLS, I see every house, condo, and multi-res property that hits the market – and more often than not, I say to myself: “What are these people thinking?!”
You see, most houses just aren’t priced to sell. In order to get $700,000 or $800,000 – hey, let’s face it, even $600,000! – for a house these days…the house has got to be pretty special. It’s gotta be tight, turn-key, in a good location, or have enormous and obvious upside potential. And yet, the market is flooded with houses in these price ranges…and there are no buyers for them. There would be buyers if the houses really were turn-key in fabulous locations – however, those properties are also usually priced $200,000 more than the market is now willing to pay for them.
These days, there is absolutely no shortage of buyers in the mid-county area in the $400,000-$550,000 price range. The problem is, there are almost no properties in this price range – and this is the reason why, I think, we have this Real Estate Deathmatch thing going on. There’s just very little tho choose from at the price the market is willing to pay.
Take, for example, the listing at 3365 Branciforte Drive. I am the co-listing agent of this property. This property had actually been listed by my office for a loong time – since May of last year. But then, it was a short sale, and started out at $799,000. Actually, when it started out, I don’t think it was a short sale – but as the months went by, the price was reduced until finally the owner owed more on it than the market would pay. It was in contract as a short sale at the time the property got foreclosed on – but there was no stampede of buyers vying for it at the time.
Why? Because nobody likes a short sale. Once that property became a bank-owned foreclosure listed at $459,900 – woah. Many buyers avoid short sales because so few of them are successful. For example, this very same property – it was in contract as a short sale and then…it got foreclosed on anyway; the buyer had full loan approval and was all set to close. The buyer had spent hundreds of dollars on an appraisal and a septic inspection, all for naught. Who needs that kind of aggravation, right?
This property ended up getting 10 offers on it – this is being sold by one of the banks that lets properties sit on the market seven days before reviewing offers. It should go ‘pending’ probably on Monday, after the bank chooses the winning offer. And all this madness over a house with serious foundation issues. True, it’s got a nice lot and it’s in the Happy Valley school district, but this house really needs a lot of work.
But buyers are willing to take it on- because there’s just not a lot out there in this price range. Soon, though, the now-healthy pool of buyers even in this price range will start to shrink. Unemployment continues to rise, and lenders continue to tighten lending standards – and that’s a fatal one-two punch that even historically low interest rates will not be able to combat fully.
So if you’re one of these buyers who writes 15 offers and misses out on every one – if you are battered and bloodied by this Real Estate Deathmatch that’s going on – take heart. This is just the Universe’s way of telling you that the time for you to buy hasn’t quite arrived. Time is on your side – if the deathmatch is too brutal, there’s no harm on sitting the sidelines a while longer, so you can heal up for future bouts to come.