Supply & Demand
Continuing the conversation… trying to make sense of the incredible run real estate has been on since it re-emerged from shelter in place and found itself in a decidedly different post- covid environment, one profoundly transformed by the pandemic experience.
This summer, prices have risen higher and faster than at any other time in my 30+ year career. Is this a bubble? Will it continue? What will happen for the rest of 2020? When in doubt, the best place to look for answers is the most basic principle underlying all markets – the relationship between supply and demand.
Supply Side: There are currently 160 active single family residences (sfr) in Santa Cruz. This is a 10% drop from last week. The active inventory has also fallen every consecutive week since June 1st. Last year at this time, we had over 400 active sfrs on the market. The normal seasonal pattern has always been: the closer to Christmas, the fewer new listings there are (people distracted by holiday’s etc.)
The surge in prices has more homeowners thinking about the possibility of selling. But thinking about it and doing it are two very different things. The biggest question remains: “Where will I go if I sell?” and there are still plenty of hurdles to figuring that out. Not to mention that it’s almost impossible to make a successful contingent offer in a low inventory market.
Demand Side: Currently there are multiple offers on most listings – which means there’s a big pool of buyers out there who want to write offers. Larger scale economic factors are lined up to support demand as well. NASDAQ is in record territory. Tech Jobs have largely avoided the downturn of the COVID recession Interest Rates are at phenomenally low levels. What could happen to significantly decrease the number of buyers out there and alter the existing relationship between supply and demand?
More buyers will certainly suffer market-fatigue after losing out in one too many multiple offer battles. Some will decide to sit out the 4th quarter and reset their searches for early next year. And as prices go up, more buyers will be priced out of the more expensive areas. But as long as Santa Cruz prices remain well-below those in neighboring Silicon Valley, more buyers will be inclined to head towards the Coast (especially now that the commute has become less important.)
There you have it. There’s nothing on the horizon that suggests the supply is going to increase between now and the end of the year. And there aren’t any substantial factors that indicate buyer demand is going to diminish.
Next week: What buyers and sellers should do in the coming months.