2010 Santa Cruz Market Forecast

By
Real Estate Agent with Monterey Bay Properties

 

2010 Santa Cruz Market Forecast

 

Over the last year, I have written numerous reports about the state of our local real estate market. As you know from these reports and the general media, we are in one of the most compelling real estate markets in our lifetime. This is demonstrated by interest rates being near all time lows, home prices plummeting at record rates, and we have not seen this many bank foreclosed properties since the Great Depression.

2009 was a great year for buyers at the low end of the market (Homes under $500k) and was the major driving force of our local market. We even saw at times a feeding frenzy with multiple bids on properties. There are several factors for this growing number of buyers,  which include the availability of low interest FHA loans, the federal government first time home owner buyer incentive and very low homes prices. With all the buying competition, we have seen a slight rise in home prices at the low end of the market.

But 2010 could bring a shift in the winds. Mortgage interest rates have been kept low by the government buying mortgage backed securities and they plan to stop making purchases at the end of February. If that happens, interest rates are projected to rise. On top of that, the government first time home owner incentive program is supposed to end April 30th.  Loss of both of these government programs will have an effect on the low end of the market.  Thus we could see a drop in available buyers at the lower end of the market in the second half of 2010 and a slower market.  

 The middle market (Homes between $500k - $1.1m) has been relatively balanced. Home values have gone down across the board since 2007 and it appears that home prices are bottomed out. Beach homes are still in good demand and are doing better in holding their value.  This can be seen in areas like Capitola. In comparison, the rural areas have seen the biggest drop in home values. But home prices are starting to stabilize and it is hoped we will start to see more move-up buyers this year.

The high end of the market (Homes over $1,1m) has been very slow and home prices have come down some.  But they have not bottomed out yet. Currently we have an abundance of high end homes and a dearth of buyers. Beach home property values have gone down some, but there seems to be enough demand to keep prices from dropping dramatically. But in comparison, the larger estate country homes have taken a big hit. The demand for these homes is much smaller and thus property values have tumbled.  We can expect to see more of the same in 2010.

In summary, we are expecting to see a constant flow of Notice of Defaults resulting in growing the bank inventory of foreclosed properties. Thus 2010 will be much like 2009 with the following twist.  High end homes will continue to drop in price. Interest rates will start to move up over the year. Without continued government support, the lower end of the housing market will start to slow down. And banks that are sitting on a large number of foreclosed homes will start releasing a greater number of their inventory, thus keeping a downward pressure on home prices.  So it looks like 2010 will be another great market for buyers.

 

Comments (0)