To Sell or Not to Sell

In the early ‘Nineties, Santa Cruz County was recovering from the double whammy of the Loma Prieta Earthquake and the recession which had hit our economy pretty much simultaneously. Many of the downtown merchants were still operating out of the temporary tents that were erected in the wake of the quake while their buildings went through the reconstruction process, and damaged homes were finally getting reinhabited.

It was in this environment where I first started working in real estate, and at the time it was understood that if you took on a listing, you could expect to work on it for the better part of a year before it would sell. Instead of panicking and dropping the price every few weeks, you would hold the line, and along the way you would hold a lot of open houses. 

Towards the turn of the Millennium the market not only recovered but quickly accelerated with the help of new technology and the trend towards direct access by the public to listings via portals like Redfin and Zillow and it seemed like, when a home was effectively marketed, buyers would find you. During this timeframe the Unsold Inventory Index, which measures the number of available homes compared to the rate at which they are selling was regularly under 3 or even 2 months, and those levels of supply continually drove the prices upward. And as the market showed signs of slowing in the wake of COVID, interest rates spurred another unprecedented period of activity and growth. 

With the increase in interest rates, and supply creeping back upward it appears we are in a transition back to a market where homes take longer to sell, and this is starting to put some downward pressure on pricing for people who don’t have the luxury of time for the right buyer willing to pay their price. 

One of the larger mortgage brokerages in the county recently observed that of their current 19 home sales they are financing, 15 of them—79% of their active sales transactions—are in escrow at under the list price. These are current deals underway, and when factoring in the history of price reductions instead of simply the price at time of sale, they show that the Sellers of these homes on average are making the difficult decision to take 11.1% below their original list price to attract a buyer.

With many homes still carrying legacy loans at historically low interest rates, rather than taking the hit, we are starting to see other sellers pull their homes off the market to either stay put, or in some cases rent them out temporarily in hopes of selling them at a future date when the interest rates come back down. 

On the other hand, it could be years before we see an upward trend, so anyone seeking to preserve their property tax transfer and capital gains exemptions is going to have to make an educated guess. And only time will tell which decision was the right one.