About the shift in the market both in Santa Cruz and on the Silicon Valley side of the hill
Returning to our conversation…about the shift in the market both in Santa Cruz and on the Silicon Valley side of the hill. And why what’s happening over “there” is usually a good indicator of how the market “here” will trend in the future.
For better or worse, the two areas are intimate- ly connected when it comes to the three things people say are their biggest concerns: housing, jobs, traffic. The order of importance may vary, depending on who you talk to, but the rela- tionship between the three is inexorable. Each drives the other two in myriad ways.
The real estate relationship between the two sides evolved significantly during the 1980s. That’s when our local’s curse of “Valley Go Home” evolved into more of a “Valley Come Home” concern. Santa Cruz was transitioning into more of a bedroom community for the tech economy in and around San Jose. More of “them” started to become “us”.
Seagate, Borland and SCO were big employers back then, but over time most local tech companies realized they’d have to move closer to the epicenter of the job market to sustain themselves long term. It was harder to get people living over there to work over here than it was to get people living here to work over there. Houses were more expensive “there” but jobs paid much better than “here”.
The pace of real estate in the late ‘80s was as- tonishing. It felt like a modern day gold rush. Things flew off the market and prices pushed up, in part, due to low start rate adjustables, negative amortizing loans and an appetite for leverage. Everyone said we’d never see a market like that again.
As prices rose to unprecedented levels, fewer local people could afford houses. More people working over “there” began buying “here”. They discovered that crazy Santa Cruz prices were still a lot lower than in places like Los Gatos. The devil’s bargain was a longer commute. “Drive a little and save a lot,” as the commercial says.
In the early ‘90s the market went through a recession. Think inflation, the savings and loan debacle, significant job layoffs and the immortal campaign phrase that defeated Bush: “it’s the economy, stupid.” I used to say that real estate was between Iraq and a hard place back then.
As jobs there dipped, prices over there did too. Here, we experienced the first of a series of cyclical contractions. We had a lot fewer buyers when people working in tech starting gravitating back over the hill to live. That migration back had a disproportionate effect on how low prices dropped in Santa Cruz – around 15-20% at the time.