Same Data, Different Approaches

There’s an interesting phenomenon happening in Santa Cruz County, where the psychology of our housing market seems to be at a lull, while all around us are signs of activity that generally presage good things to come.

Last month Santa Cruz County showed 25% more price reductions than closed sales, and new listings coming on the market at over twice the rate as closed sales. This indicates a growing number of sellers and their agents around town perhaps being spooked by some negative headlines or local sentiment, but people may want to think twice before panicking. 

Oddly enough, during the same timeframe in Santa Clara County, over 2.5x as many homes closed escrow as there were price reductions. What’s more, they sold at an average of 104 percent of their List Price with a median of 10 days on the market, and their Median Sales Price soared to $2,162,500. 

With these kinds of statistical data giving a strong case against reducing prices, some savvy sellers are starting to consider different strategies, some of which, perhaps counter-intuitively, include a price increase. Allow me to explain the rationale: 

We had the opportunity to observe the slowdown firsthand with the townhomes we are selling at the Dwellings of Soquel, where the majority of our sales were to buyers using the proceeds from their last home. With the recent spike in interest rates people have become more aware of the growing difference between their current monthly mortgage payments and what they would have to pay at the place they wanted to buy. This slowdown mirrors declining volume of sales countywide.

To help free up current buyers with low interest loans, we found a lender who has a program that allows us to offer a builder-subsidized buydown to an extremely reduced pricing, where we are able to deliver a 30-year fixed interest rate of 4.99%. Given that the subsidy runs as high as 7 to 9 points paid by the developer, and given the current strength of the County Median, in order to offset this cost of the buydown we are able to find a balance by adjusting our prices slightly upward to subsidize an interest rate that affords the buyer monthly payments much closer to what they have become accustomed to with their current homes.  

As an alternate strategy, we are also packaging the 5 townhomes together as a single assemblage that can be held as a type of land-banking investment at a break-even cash flow or better. This should appeal to a partnership coming out of a 1031 Tax Deferred Exchange who might prefer a new build with flexible options for disposition to an older single apartment complex. And it also has the advantage of flexibility of much better loan options, particularly with the builder subsidized program. 

By changing how the property is positioned the objective is to make it match up with the needs of people who are out there looking so they can view it in ways they hadn’t previously considered. And the rest is up to them.