Santa Cruz Real Estate: Out of Hibernation and Into a Bubble?

santa cruz real estate report: Feb. 2015The following market analysis is provided by Liz Kroft and Lance Hulsey of Mainstream Real Estate Group.

Yawn. Stretch. The real estate market begins to come out of its winter hibernation in January and February. 2015 is no different and as such the market statistics are not particularly enlightening just yet, but that does not mean there isn’t much to learn early in the year.

The last three springs in Santa Cruz County saw progressive markets, which took home values to new heights. From March through May of 2014 homes (single family and condo/townhome) were going like hotcakes, with a median1 of 18 days on market2 and selling at an average of 99.6% of list price. There is quite a bit of speculation and assumption about what will unfold in 2015 with historically low interest rates, tight inventory, and rising prices.

To put inventory into perspective: There are currently only 1,657 Single Family Homes for sale across Santa Cruz, Santa Clara and Monterey counties. Not much for a population of over 2.5 million.

First, lets take a quick look at what happened in February in the Santa Cruz County real estate market. The Infographic below provides a great snapshot:

santa cruz real estate market feb. 2015

Are we experiencing the beginnings of another housing bubble?3  In January 2015 the median price of a single family home in Santa Cruz County was $667,500. This is up from $615,000 a year ago.  High demand and short supply creates pressure on the housing market and prices rise — fast! Too fast? Many think so. This chart below shows 100% home equity4 ticking downward. This could be due to confidence in prices and people  taking money out of their homes. The good news is home debt also is ticking downward as prices continue to rise.

Home Equity Percentages - Feb 2015

To put even more pressure on prices, we are seeing a population shift from the greater Bay Area as buyers chase lower median housing prices in the Santa Cruz County markets. More and more people are willing to move “over the hill” and commute to jobs in Silicon Valley. Add to that new job growth in Santa Cruz, and we have a recipe for upward pressure on home prices in the county.

Santa Cruz County Unemployment Rate (Not Seasonally Adjusted)

santa cruz unemployment rate: feb. 2015

(Data from U.S. Bureau of Labor Statistics  |  Last updated: Feb 5, 2015)

Prices Are High But Becoming a Homeowner is Not Out of Reach

It is not all bad though. Interest rates continue to remain historically low and improvements in the home buying process by financial institutions allow a wider population to afford homes. In January, the Obama Administration directed the Federal Housing Administration (FHA) to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%. For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic’s chief economist, Sam Khater. This announcement came on the heels of another big win for buyers in December 2014: Fannie Mae and Freddie Mac officially approved 3% down payment mortgages that month in an attempt to expand the credit offerings for first-time homeowners.

Lenders are loosening their reigns slightly on their requirements too. According to Shane Valente, Senior Mortgage Advisor with FirstCal, “Non-conforming and private money lenders are actively getting more aggressive with their styles of financing options, including portfolio loans that only require 12 month bank statements to verify income, and for investors only looking at Debt Calculation Ratios for the income property alone.”  Other programs such as Measure O and down payment assistance programs exist to help buyers enter the market. Everyone’s needs and financial situations are different, and this is where an experienced Realtor and lender can help navigate financing options and land a property in a highly competitive market.

interest rates

What Does This All Mean If You’re Selling Your Home?

We don’t mean to make this all about home buyers—it is very much a seller’s market after all.  So homeowners, with sales prices relatively high (the median is up 11.7% from last February) why are you hesitant to sell?

The number of available homes for sale is slowly creeping up following the winter doldrums. In February, 110 new properties came to market, compared with 60 in January, 20 in December and 14 in November. The trouble is, pending sales have increased more rapidly than listings in 2015 which means depleting inventory. Some speculate that low inventory is tied to the number of homes that are still without (enough) equity.  Other contributing factors may be concerns about sellers’ ability to afford moving up or that they have great rates locked in that they are afraid to disturb.

Illegal Dwelling or Remodel on Your Property? You May Be In the Clear

While we are on the subject of sellers: it is not widely known that at the end of 2014 the county unveiled the Legalization Assistance Permit Program (LAPP).  This two-year program is essentially a “Get Out Of Jail Free” card from the county for property owners with unpermitted work.  This applies to the construction, alteration or remodel of single family dwellings, multi-family, commercial, industrial and agricultural structures. According to the county, LAPP “assists owners so they may enjoy the full entitlements, protection and value that come with legal improvements to their properties” without being fined for their transgressions (or those they inherited from previous owners).

For anyone thinking of selling their property in the future with unpermitted modifications, now is the time to apply.  Unpermitted work can cause quite a headache when it comes to selling a property, especially when it comes to the sale price. Read more about LAPP here.


At Mainstream Real Estate Group education is a BIG part of our culture, not just for ourselves but for our clients, our friends and our families.  Each month we will help define real estate terms.  Did we miss something? We want to know what you want to know!

  1. Median vs Average – Median means exactly half way. 50 % of the home prices are above this price and 50% are below this price. Average on the other hand means you take the total price of all of the sales in a particular month and divide the total sales by the number of sales. These numbers might be close, or they might not. It depends on the numbers.
  2. Days On Market (DOM) – Number of days from when a property is listed as “active” on the MLS(?) to when an offer is accepted at which point the property is “pending” and the escrow process begins.
  3. Housing Bubble: A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand (a shift to the right in the demand curve), in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases (a shift to the left in the demand curve), or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts.
  4. Equity: Home equity is your share of the value of your home. It’s what you truly “own” and have an interest in. It is generally defined as the difference between the appraised value of a home and how much of the mortgage still needs to be paid.  Consider this example: The appraised value of your home is $600,000.  You have paid $200,000 on your home.  The balance owed on your mortgage is $400,000.  Therefore, the appraised value ($600,000) minus the balance owed ($400,000) equals the amount of equity ($200,000).  Over time, the value of a home may increase, which could alter your equity amount.  If you have made home improvements, or neighborhood schools improve, the value may increase.  When that happens, the home could be appraised at a higher amount than what it was originally purchased for, which increases your equity.  If that happens, the same calculation applies.

Mainstream Real Estate

Liz Kroft

Liz Kroft

CalBRE 01937727

Lance Hulsey

Lance Hulsey

CalBRE 01724888

Not your average real estate group, Mainstream is shaking up the way real estate is bought and sold – from their paperless practices to their creative strategies. They have abandoned rigid corporate guidelines to serve their clients to the absolute best of their abilities. “Unlike many real estate firms where it is every agent for himself or herself, we believe in collaboration and we believe in it because we know it consistently gets the results our clients deserve.”