Has the Santa Cruz County Real Estate Market Stabalized??

Is it too early to say that the local real estate market has started to recover? There are a lot of indicators pointing in that direction.   What else can you call it when you see a decrease in supply alongside an increase in demand? I am no economist, but then again,  it does not take an expert to understand the basic principles of supply vs. demand.

Here is a comparison between September sales for single family homes in 2009 and 2008:

                                                           2009                                                   2008

# Of homes for sale                               947                                                     1251

Days on market                                     86                                                       100

# of sales                                             151                                                     143

Months of Inventory                               6.6                                                      9

% of list price received                          98.01%                                                95.66%

Median sales price                              $535,000                                               $475,000

Prime interest rate                               3.25%                                                  5.0%

Again, the data shows a decrease in homes available and an increase in numbers of sales.  This is a trend that we have been seeing for most of 2009.   Currently we have a supply of 6.6 months of inventory vs. 9 months a year ago.  This is considered by most to signal "normal" market conditions, with little pressure on prices to go up or down.  If the trend continues we will see the current supply decrease, which will put upward pressure on prices.   There is still an increasingly smaller segment of the population that believes prices will have another significant drop. At this point in time, for that to happen we would need to see a significant number of buyers leave the market and/or a sharp increase in inventory.   

Much depends on what potential buyers can qualify for based on interest rates and underwriting guidelines.  Rates have continued to stay near historic lows, helping to keep payments affordable.  The challenge for buyers is to qualify for the loan with today's very strict guidelines.    If guidelines loosen up then more buyers will be able to purchase, which would increase demand.  On the flip side, if guidelines continue to tighten up, or interest rates spike upward, this could decrease demand by limiting the number of qualified buyers in the market place.

Another factor has been the tax credit for first time buyers of up to $8,000.  This has just about run out (end of November) and congress is debating whether they will extend the tax credit.  There is even talk of extending the credit for all home buyers, not just first time buyers. The question is whether it is really enough to stimulate the market.  I have observed from my own clientele this past year, that the credit was one of the motivating factors to get them off the fence and buy if they were first time buyers.  There will also be the delayed stimulus to the local economy when they file their taxes in 2010 and either owe $8,000 less or get a refund.  This may make the difference in purchasing new furniture, or doing minor remodeling.