Shift Happens Part 4
Continuing the conversation… These are the initial stages of a much larger shift happening in the real estate market. After ten straight years of the longest running, highest appreciating, craziest making market anyone has ever seen, noticeable cracks are starting to appear.
So what does that mean? And how can buyers/sellers/agents who have been conditioned to think the market would just keep going up forever and that multiple-offers with 30% overbids would continue to be the norm, make sense of it all.
As is often the case when a shift has just started, there’s no clear picture about what’s happening yet. Most real estate data iis trailing information that’s at least 30-60-90 days behind the curve. And as soon as prices stop going up, the pendulum often swing wildly to the other extreme as people overreact and assume that the worst. (We’re humans, that’s how we’re built!) At the moment, reasonable perspective is in short supply which is why I’m sharing a little of my own:
Prices: In June, the median price in Santa Cruz County was $1,325,000. That’s right up there with the highs of last year which was arguably the best year ever for real estate! (Way beyond anything we could have imagined prior to the pandemic.) And yes, June was well below the astounding high of $1,610,000 we saw in March but did anyone really think that was sustainable?
Interest Rates: The record low rates we’ve enjoyed for the last few years (3.3% average) are just that – record lows for the last 50 years. In the 1970s the average was 8.9%. The 1980s – 12.7%. The 1990s – 8.1%. The 2000s – 6.3%. The 2010s – 4.1%. We’ll have to wrap our heads around the fact that 30 yr fixed rate mortgages at 3% are a thing of the past. We may not see free money like that again in our lifetimes. The real estate market will go on without it and a smorgasbord of new adjustable loan options is just around the corner.
Recessions: Not all recessions are alike.Unfortunately the only one most people remember also happens to have been a once in a lifetime event. The Great Recession was caused by very specific factors related to the subprime loan market – all of which are missing from today’s post-covid landscape. The previous recession happened in 2000-2001 when the dot.com bubble burst, $6 trillion dollars disappeared from NASDAQ almost overnight and tens of thousands of tech workers lost their jobs. And STILL real estate prices in Santa Cruz never went down (transactions slowed but prices only flattened)!
Next Week: More perspective on the evolving shift.