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As we begin 2025, it was just a while ago that the Federal Reserve made its third consecutive interest rate cut of the year. On December 18, 2024, the Fed reduced the federal funds rate by 0.25 percentage points, bringing it back down to a range of 4.25-4.5%, a level not seen since late 2022 and early 2023. While inflation has cooled somewhat over the past two years, home prices have remained stubbornly high, especially in desirable areas like Santa Cruz. With the presidential election now behind us, history suggests that home sales typically get a small boost in the wake of an election, regardless of the outcome.
As we look ahead to 2025, potential homebuyers in Santa Cruz face a complex decision. While national housing market trends suggest a possible recovery, the local conditions in Santa Cruz present their own set of challenges. High mortgage rates, increasing home prices, and a persistent shortage of available homes could make the choice to buy more difficult. So, as we look ahead to 2025, is it truly a good time to buy a home in Santa Cruz?
What to Expect From the 2025 Housing Market in Santa Cruz County
Before you start your search for homes in Scotts Valley, Watsonville, or other areas of Santa Cruz County, it’s important to understand the factors shaping the housing market in 2025. In recent years, the local market—like much of the Bay Area—has been influenced by rising mortgage rates, limited housing inventory, and shifting demand.
Looking ahead to 2025, there are some factors that could be good for buyers, but there are also some challenges that might make it harder to buy a home. Let's take a closer look at what you can expect from the Santa Cruz County real estate market this year.
Mortgage Rates: What’s the Forecast? Mortgage rates will continue to be a big player in the Santa Cruz housing market for 2025, and they’re shaping up to be a bit of a mixed bag. While rates have dropped recently, they’ve stayed above that crucial 6% mark—meaning we’re still not seeing the low rates many hoped for. Experts don’t expect rates to dip back to the 4% range like they were during the first term of the Trump administration. With an expected hefty government deficit and high borrowing, mortgage money could stay in shorter supply, keeping rates higher than we’d like.
That said, things could change. If the government takes steps to curb spending, reduces regulations for homebuilders, and job growth continues, mortgage rates could fall more quickly. However, economic uncertainty—particularly surrounding government spending and inflation—makes the 2025 housing market challenging for buyers. Moreover, even though the Federal Reserve is expected to cut its benchmark interest rate by another 50 basis points, bringing it to around 3.75% to 4%, these cuts may not lead to a significant decrease in borrowing costs.
So, what do the projections say about 30-year fixed mortgage rates for 2025?
- The Mortgage Bankers Association predicts rates will hover between 6.4% and 6.6%.
- Realtor.com expects rates to end the year around 6.2%.
- Fannie Mae is forecasting an average of 6.4% for the year.
- Wells Fargo anticipates a slight drop to about 6.3%.
- Goldman Sachs expects rates to stay above 6% all year.
In simple terms, rates are expected to remain relatively stable. However, if you're thinking about buying or refinancing in Santa Cruz, it's important to keep the bigger picture in mind. The market still has its uncertainties, so it's a good idea to stay prepared for any surprises along the way.
Home Prices: A Steady but Modest Increase Although we probably won't see significant spikes in home prices in 2025, experts believe there will be steady increases. According to real estate professionals, around 24% of the price of a single-family home and about 41% of a multifamily property come from regulatory costs at various levels—local, state, and federal. President Trump’s plan to make some federal land available for housing development—an idea that both candidates in the 2024 election seem to back—might help tackle the ongoing housing shortages.
However, while there are some genuine concerns that much of the federal land in California consists of rugged terrain or is located far from urban areas, a recent report by the Terner Center identified more than 50 U.S. Postal Service sites in California that are well-positioned for housing development due to their proximity to public transportation and residential areas.
Inventory: More Homes Could Be Available A slight uptick in housing inventory is expected in 2025, with U.S. inventory projected to rise by 11.7%. While this increase is welcome, inventory will still be well below pre-pandemic levels. During the pandemic, many homeowners refinanced their mortgages at low rates, creating a “rate lock” effect that kept inventory tight, especially in highly desirable areas like Santa Cruz and Los Gatos. As interest rates stabilize and homeowners adjust to the new normal, some may decide to list their homes, leading to a slight increase in market activity.
For instance, home sales in the Bay Area saw a significant boost in November 2024. Single-family home sales climbed by 14%, while condo sales shot up by 29.4% compared to the previous year. In this fast-moving market, acting swiftly can make the difference between securing a favorable price and facing costlier options down the line. As all parties work to adapt to these changing conditions, timely decisions and efficient negotiations are becoming increasingly critical to successful real estate transactions.
In addition, the election outcome and growing economic confidence could lead to an early surge in housing activity as soon as February 2025. This increase in market activity may provide more opportunities for buyers, especially in smaller towns like Aptos and San Lorenzo Valley, where competition is typically less fierce.
Is 2025 the Right Time to Buy a Home?
While broader market trends are crucial, when it comes down to it, buying a home in 2025 is really about what works for you. Here are a few key factors to consider when thinking about purchasing a home in the Santa Cruz area.
Can You Picture Yourself Here Long-Term?
Let’s say you’ve found some fantastic homes for sale in Scotts Valley or Watsonville. While owning a property can be tempting, you must ask yourself: Can you see yourself living in this area for the long haul? The purchase of a home is a significant investment, and many individuals are interested in establishing a permanent residence in Santa Cruz due to the breathtaking coastline, the majestic redwoods, or the close-knit community atmosphere.
If you are confident that the Santa Cruz region is the place you want to call home for the foreseeable future, 2025 may be the ideal year to make the move. You will have the opportunity to secure a mortgage at the current rates and begin accumulating equity, all while experiencing the unique qualities that make this small part of California so special.
Your Financial Health: Are You Ready?
The housing market in Santa Cruz has historically been viewed as a sound investment opportunity. But this year and beyond, the market may experience some shifts and unpredictability that you must pay close attention to too. With interest rates on the rise and shifting economic factors at play, the market has become harder to predict with confidence. While the natural beauty of Santa Cruz and its proximity to homes in Silicon Valley continue to drive demand, you might notice slower price growth or even some price corrections as the market adjusts to higher financing costs and inflation. It’s still competitive, so being financially prepared is key if you consider buying in 2025.
If downtown Santa Cruz properties feel out of reach, more affordable options are nearby, such as Watsonville and the San Lorenzo Valley. But keep in mind that some of these areas come with their own pros and cons.
- Watsonville: It’s still less expensive than Santa Cruz, but prices have risen as more people look to the area. What was once an affordable option may not feel as budget friendly as it once did.
- San Lorenzo Valley: This area might appeal to you if you're drawn to a quieter, more rural lifestyle. Towns like Felton, Boulder Creek, and Brookdale offer lower property prices than the City of Santa Cruz. However, they’re farther from urban amenities and schools, and commuting could be a factor to consider. Access to healthcare and other services might also be more limited.
Are you able to comfortably handle monthly mortgage payments, even if interest rates are a bit higher? And do you have enough saved up for a down payment? Your credit score is a big factor in figuring out what interest rate you’ll get. Generally, a higher score means you’ll score better loan terms. If you’re aiming for the best rates, try to reach a FICO score of at least 620—but remember, the higher your score, the better the terms you can expect.
Also, don’t forget to think about your debt-to-income (DTI) ratio. Lenders usually prefer a DTI under 36%, so if yours is above that, it might be a good idea to work on reducing your debt before you start making offers on homes.
Are You Prepared for the Homeownership?
One factor you should consider when purchasing in some parts of Santa Cruz is the financial implications of environmental hazards, particularly flooding and wildfires. Remember that insurance premiums may be considerably high if you're considering a property close to the coast (exposed to the negative impacts of storms) or in areas at risk for flooding.
But there's a positive side to this: environmental challenges can create opportunities. Many of these areas offer some of the most affordable land and homes for sale in Santa Cruz. If you’re open to putting money into fireproofing or landscaping that can withstand flooding, you could safeguard your property and increase its value in the long run. The San Lorenzo Valley has a community focused on sustainability, with many residents committed to fire prevention and water conservation. If this lifestyle speaks to you, eco-friendly upgrades could be a win-win.
Overall, Santa Cruz and Silicon Valley remains a very desirable spot, but the current market in 2025 has its share of hurdles. Between rising interest rates, uncertainty surrounding what the Republican-controlled Trump administration will do, inflation, and California’s ongoing affordability crisis, getting into homeownership here might feel more challenging than it has in the past. Before making any decisions, take time to carefully assess your financial situation. And don’t forget to reach out to a local real estate agent—they can guide you through the current market and help ensure you're making the best choice for your future. Bay Area and Santa Cruz home prices.
Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise. Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low-stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties! | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com .
Helpful Resources
- https://www.federalreserve.gov/
- https://www.forbes
- https://www.housingwire.com/
- https://www.realtor.com/
- https://www.fanniemae.com/
- https://wellsfargo.bluematrix.com/
- https://africa.businessinsider.com/
- https://ternercenter.berkeley.edu/
- 5-predictions-for-the-us-housing-market-in-2025-according-to-realtorcom/
- https://www.car.org/
- https://lookout.co/
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