Tom Brezsny has been a fixture in the local real estate industry for more than 30 years. He’s been a top-selling Realtor since 1993 and after having facilitated more than 1,500 home sales in Santa Cruz County he has become something of a defacto expert on crazy real estate markets.
Read on to hear his take on the recent wild fluctuations taking our housing market by storm.
Lookout: What’s your reaction when you hear someone say: “This has to be the craziest real estate market ever”?
TB: When it comes to real estate, “crazy” is fairly subjective. Over the last 30 years, we’ve seen record high prices and historic drops. We’ve seen over-leveraged markets and incredible influxes of cash. We’ve seen record fast sale times and other markets when listings sat for ten to twelve months at a time.
Very rarely does the market exist in a magical “Goldilocks Zone” where the balance between all factors is just right. Buyers, sellers and agents alike are always being challenged by shifts outside the norm- to the degree that normal is a moving target driven by extremes.
Lookout: How did you become an expert on “crazy” markets?
TB: Just by hanging around and selling real estate as long as I have. I’ve survived a lot of up-and-down markets, held a lot of hands and counseled a lot of people through all possible permutations of greed, fear and irrational exuberance. Somehow, I’ve managed to stay nimble enough to still view what I do as an interesting opportunity to observe human behavior and help people make sense out of this crazy creation of their own making (the market).
Lookout: What was your first experience with a crazy real estate market?
TB: I got a pretty quick dose of crazy when I first got my license. It was towards the end of the run-up in the late 1980s, when prices were skyrocketing and listings were flying off the shelf. The market felt like the Wild West. At the time, people kept saying to me: “We’ll never ever see another market like this again. This is a once in a lifetime experience!” All I knew was that things were moving fast and I was in the deep-end.
Lookout: That wasn’t exactly true, was it?
TB: Not by a long shot. A high-end home in those days went for around $500k. We’ll never see a market for a high-end home like that again in these parts, so in a way, I guess they were right!
Lookout: What were some of the other crazy markets that people have forgotten or are maybe much too young to remember?
TB: Well, there was the Buyer’s Market period of the early 90s, when some Agents didn’t even want to take a listing because the average home was taking 8 – 12 months to sell.
Then there was the dot.com fueled bubble of all things tech and real estate that was particularly crazy in these parts. Caravans of newly- minted thirty-something millionaires were driving around the beach neighborhoods putting in crazy offers based on their stock options. Of course that all went away overnight after March of 2000 when NASDAQ crashed and almost $6Trillion evaporated overnight.
There was the mid-2000s, which in some ways was the definition of craziness when seemingly anyone could get a loan for any amount of money to indulge their irrational exuberance by buying multiple places they couldn’t afford to make the payments on. And of course, the crazy market that followed after that, when the backlash of the Great Recession hit.
Lookout: Are crazy up markets always followed by equal and opposite crazy down markets?
TB: No, not always. That notion seems to be stuck in our collective heads because we’ve had more than a decade of non-stop appreciation since the Great Recession. The truth is that most down markets have been what economists call “adjustments” of a 10 – 15% downward movement in prices, which act as a kind of reset button for the balance between buyers and sellers. Market adjustments may feel crazy in the moment to Sellers who have inflated their expectations, but they aren’t anything close to the 40% drop in value we saw between 2008-2010.
Lookout: Does being close to Silicon Valley drive some of the craziness in our market?
TB: Absolutely. For better or worse, everything that happens in our market is heavily influenced by what’s happening over the hill, which is one reason why some of our craziness starts earlier than in other places and lasts longer – because the engine driving it all is so big.
Lookout: What makes this particular market in 2022 so crazy?
TB: In a global sense, I think it is a combination of two things: one is the degree to which the market is changing and the second is the sheer speed and velocity of that change. These days, the real estate ramp-up has been almost exponential overnight. People haven’t been able to do any digesting; all they can do is react to it. And that’s a particularly crazy position to put people in, especially when it comes to acting on arguably the largest asset they’ll ever own- a home.
Lookout: You’re talking about the crazy changes in home prices, right?
TB: Well, yes. Look at the crazy price point that we just hit in March: a median price of $1,612,000! But it’s not just prices. I think that the entire way the real estate process works is continuing to change rapidly – if you bought or sold a house even five years ago, that is already a very different market than anything you experience today.
Lookout: What do you mean?
TB: When you have sustained intensity in the market like we have right now, especially the kind that’s so lopsided in the sellers’ favor, the tension in that kind of a daily environment starts to change how average buyers, sellers and agents behave in different situations. Fairly quickly, new sales and purchase strategies emerge and when buyers see other buyers succeed with some new “trick”, the subsequent adoption rate is pretty quick. It’s a constant pressure to adapt as individual offers play out with multiples of buyers and sellers.
Lookout: Can you share a particularly crazy story about this market?
TB: There are so many of them… people regularly writing non-contingent offers who either can’t get their loans, or the property doesn’t appraise or they just have an overwhelming panic attack of buyers remorse, so they want to cancel escrow. Or frustrated buyers writing offers on three different properties at the same time to up their odds of getting one of them. I even heard a story about a buyer who had two different real estate agents put in offers for him on the same house so that he was competing with himself! Or people who thought they overpaid for their house until they received unsolicited cash offers for $300k more just six months later. People writing offers on properties they haven’t even seen.
I mean it’s crazy that in so many cases buyers walk through a property for twenty minutes, go home and download five hundred pages of very obtuse disclosure documents and then write an all-cash offer 30% above list price, all on the same day while they are competing with 20 other buyers doing the same thing! People making crazy pre-emptive offers. There is an incredible amount of what would have been considered extreme, crazy behavior right now that is now considered normal.
I think the craziest situation I’ve been involved with this year was the 32 offers I received on a listing in La Selva Beach. Most were all cash with no contingencies. The price got bid up from $1,500,000 to $2,300,000 – more than 50% higher than list! We spent about six months preparing that home for sale but it was all over quickly with a five-day close. For me, it wasn’t easy telling 31 different buyers that they didn’t get the house!
Lookout: For people who haven’t bought a house for a while, what are some things they are struggling to adjust to?
TB: There’s a whole series of new things they’re going to have to get used to if they want to buy in this market. They better have enough cash to purchase or they’re probably not going to have much luck. When it comes to contingencies, they better be prepared to waive them all up front- not because it’s a good idea, but it’s the requisite when there are five other buyers totally willing to waive all of their contingencies. They also have to realize that the list price is just a “starting price” now. What a neighboring house sold for six months ago doesn’t mean much if you are going into a ten offer situation on a new listing.
Lookout: What about sellers? What are they having to adjust to?
TB: In most cases, sellers are going to get more for their house if they list it at a lower price. That may seem counter-intuitive, but it is actually the competition between buyers that pushes the price up. The more buyers in the mix, the more offers there are, the higher the price is going to go.
Lookout: It’s understandably a complicated dynamic, but what exactly is causing this kind of market?
TB: Short answer? The extreme low level of supply. A balanced market is usually considered to be 4 months worth of active inventory- anything less than that and you are in a Seller’s Market. We’ve been in a Seller’s Market since 2013 now. This past January, we actually started out the year with 75 active single home listings in the entirety of Santa Cruz County. That’s simply not enough to sustain anything normal in terms of balance between buyers and sellers. We’ve recently started to drop to 1 month of active inventory.
Lookout: Who are these buyers that are competing in these multiple offer situations and paying so much? Where are they coming from?
TB: Mostly Silicon Valley, the Peninsula and the SF Bay Region in general. I’d say that at least 80% of all our buyers are coming from outside of Santa Cruz. Just as 80% of people selling are going elsewhere and leaving the area. Buying and Selling patterns also reflect some of the bigger demographic shifts that are driving things in so many markets around the country – millennials coming of age looking to buy their first homes, and aging baby boomers looking to retire to locations where homes are less expensive.
Lookout: Last month we topped $1.6 million in both median and average price for single family homes, which is just astounding. How high do you think prices can go?
TB: The first place to look for an answer is where the average price points are in Santa Clara and San Mateo Counties. Right now, the average home in Santa Clara costs close to $2.3m and in San Mateo it is closer to $2.5m. Since that’s where most of our buyers are coming from, I think it is reasonable to assume that our prices will go at least that high in the not-too-distant future, particularly as hybrid work situations develop and more people continue to reevaluate their lives post-COVID. Right now, we are only running about two years behind those two counties and my prediction is that someday soon we will catch up with them in real time.
Tom Ranks Santa Cruz’s All-Time Craziest Markets
- The COVID Market (2020 – 2022): The median price for SFR reaches $1,612,000.
- The Subprime Run-Up (2003 – 2006): Anyone could borrow any amount of money they wanted to indulge their irrational exuberance.
- The Dot.com Bubble (1998 – 2000): Market madness fueled by stock options and IPOs.
- The Great Recession (2008 – 2010): Values drop 40% and almost 40% of transactions are distress properties.
- The Long Cycle of Appreciation (2013 – 2019): Extreme low inventory levels creates a permanent Seller’s Market.
- The Late 1980’s Boom: The era of yuppies and dinks (Double Income No Kids), plus adjustable loans allowed people to take on more debt.
- The Early 90’s Buyer’s Market (1990 – 1993): Average listing takes 8-10 months to sell. Inventory is 15 times the current supply.