The Distress Market

The Distress Market

Today’s question? What’s the one big thing, above all other things, that has defined the Santa Cruz County real estate market over the last twelve years? Starting way back in the early spring of 2013 when it became clear we were turning the corner and starting to climb out of the doldrums of the Great Recession?

That’s when the Distress Market reached its tipping point.  Prior to that, a huge number of short sales, foreclosures and bank-owned properties accounted for almost 40% of local real estate transactions. And after that, the once- steady stream of new distress properties slowed to a trickle. These days, REOs and Short Sales only comprise 1% of our marketplace.

That one big thing is, of course, “inventory”, specifically, the glaring and exasperating lack of it. Without a doubt, our incredible shrinking inventory has been the dominant theme of the last decade. And one that has carried prices from the teetering edge of a subprime abyss to crazy new heights beyond what anyone could have dreamed of back in the bubble of 2006.

What a long, strange trip it’s been. When that big glut of toxic loans and distress properties finally disappeared, nothing else was there to take its place. No new influx of “organic sellers” was waiting in the wings to fill the void.  The market didn’t return to “normal”,  it just seemed to swing back to the other extreme.

Instead of a market overpopulated by distressed sellers who were underwater on their loans and late on their payments, we found ourselves in the middle of a market full of distressed buyers complaining about the lack of opportunities and clamoring to outbid each other on the next new listing.

For most of the last decade,  the inventory has grown smaller while the disconnect between supply and demand has grown larger. The result? A new kind of market dynamic with a new set of characteristics: Increasing competition for fewer homes. Multiple-offers. Frequent overbids. All-cash offers. Shorter escrows. Longer rent backs. Shorter contingency periods. Fewer days on market. And record prices!  For those who are younger and relatively new to the market,  I canI assure you,  real estate hasn’t always been like this.  

As I’m writing, I just took a quick glance to see how many active single family homes are listed in SC County.  247 single family homes are listed as active from Boulder Creek and Bonny Doon to Santa Cruz, Aptos and Watsonville.  79 of them are listed above $2m.  Another hundred are priced between $1m-$2m.  And the rest are under $1m,  most located in San Lorenzo Valley.  Here, on the cusp of another spring selling season,  this is what the landscape looks like.