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The Santa Cruz housing market has been of high interest and speculation lately, as potential homebuyers and investors try to decide if the market is shifting. With its beautiful coastline and vibrant community, Santa Cruz, located on the Central Coast of California, had always attracted people chasing the classic Californian way of life. In contrast, market dynamics are still very complicated in having limited housing supplies, high demand, and economic indicators affecting affordability and investment potential.
Over the last couple of years, property values have appreciated considerably. The questions on many minds are whether this increase is sustainable. Whether buying or selling these days, a knowledgeable consultant can be more critical than ever. Let's discuss what makes the Santa Cruz housing market tick and receive personalized advice tailored toward your real estate goals.
Signs of a Housing Bubble in Santa Cruz
The identification of signs of a housing bubble calls for observations of major market indicators that normally precede a precipitous downturn. Several such signs may point to an emerging housing bubble. First, the prices for homes in the area have appreciated at a rate higher than inflation and greater than income growth, making them unaffordable to the average buyer. This is a classic hallmark of a bubble: prices entirely disconnected from prices or any other fundamental economic factor.
Another key indicator would be the rate of real estate investment, including speculative buying, that might give prices an unnatural rise. Where investment activity is pushed by expectations of further price growth, not by intrinsic value in properties, such a market would be open to correction. Another red flag is the house price-to-rent ratio, which indicates that it makes less economic sense to buy a home compared to renting.
Excessive borrowing is another sign of the bubble, wherein consistently the buyer takes on increasing amounts of debt, convinced that inflated property values shall cover such risks. Low interest rates make it easier to borrow, as in the recent years, perhaps further inflating the bubble. Monitoring these, along with other indicators—such as the development of construction booms or changes to the mortgage approval rate will be the way to check the health of the Santa Cruz housing market to make effective decisions.
According to the Scotts Valley Patch article, Santa Cruz came in eighth on the list, with a 5.67 percent two-year drop in home values. The typical home in Santa Cruz was worth $1.18 million as of June but 20.08 percent had a price cut, with a mean reduction of $89,350, according to GOBankingRates.
Historical Perspectives on Santa Cruz's Real Estate Trends
To understand the status of the Santa Cruz housing market, it should be pointed out what its real estate historical trends have been. Historically, Santa Cruz has been forced to go through boom-and-bust cycles, or simply leveling off or decreasing, reflective of the greater economy. For example, the tech boom brought a demand for housing in Santa Cruz, which increased exponentially because of its proximity to Silicon Valley. Industry professionals in this field could afford higher-end housing, thus making it very desirable. These new high-income residents escalated home prices significantly.
In sharp contrast to this, the economic downturn of 2008 did see property values drop significantly like in most parts of the United States. However, the Santa Cruz real estate market was rather resilient and recovered faster than most areas owing to the coastal location and small supply of housing. Other factors that seemed to drive the market over years were changes in zoning laws, protection of the environment laws, appeal of the area as a tourist destination, among others, which shaped the supply and demand dynamics.
More recently, the rise of telecommuting arrangements has put more people interested in Santa Cruz homes, moving out of town in search of more space and a better quality of life. It is this new upward shift in home prices that again moved concerns about affordability and sustainability to the forefront. Looking at these historical trends allows potential buyers and sellers to better recognize the Santa Cruz real estate market as cyclical and plan for future changes.
Understanding Current Market Conditions in Santa Cruz
Some key indicators when analyzing the current market conditions in Santa Cruz include inventory levels, median home prices, days on market, and pace of sales—all very important for answering whether we're heading into a housing bubble burst.
Currently, Santa Cruz has a low home inventory for sale, which is very typical in so many other areas that people want to live in. Having fewer available properties keeps the competition among buyers sharp, and, in turn, those home values appreciate. The median home price points continue to rise, indicating brisk demand and a very competitive market environment. However, this upward trend in price points may also be a concern to the preservation of housing affordability and accessibility to the average buyer.
Another critical one is the average number of days listings stay in the market. If the listing time is short, it is considered a seller's market, meaning that houses are being devoured quickly at or above their asking price. Days on the market have been relatively low in Santa Cruz County, once again pointing out the intensity of interest from buyers and the quick turnover of available properties.
Finally, sales in Santa Cruz have been swift, with most homes under contract within weeks—sometimes days—of hitting the market. While this is good for sellers, it fuels fears of an overheated market at risk of correction.
Overall, Santa Cruz current market conditions depict a strong and active real estate setting. Such trends should be watched closely by any interested investor or homeowner to make appropriate decisions and, likewise, to understand the implications of such a competitive marketplace.
Predicting the Future of Santa Cruz Real Estate
Any forecast for Santa Cruz real estate must be based on current trends, looking backward at historical data and forward through current economic forecasts. With its beautiful coastal location and proximity to Silicon Valley, Santa Cruz has always been a desirable place for people to live and invest. So where does the market go from here?
Most often, economists refer to interest rates, employment statistics, and regional economic growth in predicting real estate trends. For example, if interest rates rise, the market will cool off as mortgages will be more expensive and buyers' purchasing power will decrease. Alternatively, a robust job market and economic growth in the area can continue or boost demand for housing in Santa Cruz.
Another critical factor is the possibility of new housing developments and changes in zoning laws. Increasing supply would stabilize prices by meeting demand, but this must be carefully balanced with the preservation of Santa Cruz's character and other environmental considerations.
Not least among these would be external economic shocks, such as recessions or events at the global level. While much more difficult to predict, they hold within them the seeds for wreaking havoc on consumer confidence and money markets, which have a trickle-down effect on local real estate.
Clearly, the future cannot be anticipated for the real estate market of Santa Cruz, though scrutiny of the economic indicators and market trends will also enable potential buyers and sellers to bargain a little more with confidence and acumen.
National Real Estate Trends
The National Association of REALTORS® reported this week that existing-home sales in June fell 5.4% compared to a year earlier. New-home sales also fell, down 7.4% compared to a year ago and the slowest pace since November 2023. Moderate inflation suggests lower interest rates in the months ahead, and that should bring more buyers to the market. The median existing-home price of $426,900 was up 4% from last year at this time, the highest on record. A portion of the rise reflected a mix-shift in sales to more expensive homes relative to ones at the low end. Inventory levels remain stuck near historic lows, standing at just a 4.1-month supply nationally, far below the 6-month supply typical in a balanced market.
California Statewide Trends
According to California Association of Realtors published report on July 22, 2024; it appears that homebuyers and homebuilders are regaining their confidence gradually:
Interest rates continue to drop: Federal Reserve is set to meet at the end of July and Interest rates have been invariably on the mend in expectation of an early rate cut. Most odds do expect the first cut to happen in September 2024 rather than at the upcoming meeting, but Treasury rates have also been improving on signs that inflation is gradually coming down after dipping below 3% year-to-year in June for the first time since prices began to rise in the aftermath of the pandemic. 10-year bonds reached their lowest since February last week, and the 2-year has fallen back, which helped the 'yield curve' to become less inverted in recent weeks. That suggests the bond market is becoming increasingly optimistic about whether the Fed can pull off their longed-for 'soft landing,' and interest rates shall continue trending down, even if the Fed does indeed decide to hold off on any cuts in July—though with ongoing volatility.
Home sales slipped in June but could rebound in July: California home sales pulled back in June as interest rates remained volatile at the end of the second quarter. Statewide sales of existing single-family homes fell to 270,200 last month from 272,410 in May and 277,690 in June 2023, off 0.8% from the May figure and off 2.7% from a year ago. On a year-to-date basis, home sales have scaled back since the beginning of the year and have fallen behind last year's level by 0.5 percent through the first half of the year. Though rates ebbed and flowed throughout the month of June, newly opened escrow sales seemed to show some improvement in the last couple of weeks, while average pending sales per transaction day were up 8% from a year ago. With easing but above-target inflation, the U.S. central bank is still likely to cut rate later this year but at a more moderate pace than previously anticipated. That is the reason, with due respect, home sales should pick up during the second half of the year but at a more modest pace than was forecasted earlier.
Housing supply remains on an upward trend: California unsold inventory index (UII) in June increased from both the prior month and the same month of last year, with active listings up 36.0% on a year-over Supply of housing remains on an upward trend: the California unsold inventory index, UII, in June, increased from both prior month and same month of last year, and active listings up 36.0 percent on a year-over-year basis. For-sale newly listed properties also increased from a year ago for the sixth consecutive month, with the pace of growth remaining solid in the past few months. In fact, the average new active listing per business day in June continued to register a double-digit increase for the fourth straight month since February. With recent economic reports in, and positive signs showing inflation cool in a more sustainable way, the mortgage rate could moderate in upcoming months. Therefore, further improvement on the supply side may be seen in California before the end of the home buying season.in a more sustainable fashion, mortgage rates could moderate in coming months. As such, further improvement in the supply side could be observed in California before the end of the home buying season.
Housing Starts Improve on Multi-Family Jump: The U.S. Census Bureau reported a seasonally adjusted annual rate of 1.35 million units of housing starts in June, an increase of 3.0 percent from May, but a decline of 4.4 percent from June 2023. And while residential construction activity rose last month—to a degree—that was almost entirely due to a surge in new multifamily development, with multifamily starts jumping 22.0 percent from the prior month but remaining 23.4 percent below last year's level. In fact, new apartment units completed reached a 50-year high in June, which is good news for renters as rents tend to cool when there is more supply available in the market. Single-family starts posted its fourth consecutive decline last month as mortgage rates continue to keep a lid on the building of one-housing units. With the Feds likely to reduce rates at the end of Q3, mortgage rates should come down, and single-family constructions are expected to improve in Q3 and Q4.
Cracks are starting to show in California labor marker despite strong headline: On the surface, California's labor market remains firmly during its post-pandemic expansion. The Golden State added another 22,500 non farm jobs in June, making it the 3rd best month for job creation this year. On the other hand, the same report indicated that there were some signs the employment conditions have softened slightly from the fevered pitch of 2021 and 2022. More than half of all the jobs created were in health care or the public sector, while 7 industries—Manufacturing, Administrative Support, and Management among them—shed jobs last month. Furthermore, California's unemployment rate has now topped 5% for the 10th month in a row, while the number of unemployed workers has remained close to 1 million for the entire year—a level it hadn't hit since crossing below 1 million at the end of 2021. Fortunately, new claims for unemployment insurance remained relatively flat, staying near 50,000 per week, indicating that California is not experiencing an onslaught of layoffs. However, the steady rise of continuing claims for unemployment insurance indicates that recently unemployed workers are now taking longer to get back to work.
California Association of Realtors California Market Overview by City Year to Date Local Data.
Tips for Navigating the Santa Cruz Real Estate Market
As potential changes come to the Santa Cruz real estate market, it becomes increasingly vital to have a strategic plan while handling your real estate transaction. There are definite strategies that buyers and sellers can follow to ensure that they efficiently navigate their way through the market. For buyers, pre-approving your mortgage will really clarify how much money you can afford and make you a qualified buyer who is ready to move quickly when that magic home comes through. Sellers, on the other hand, must work on competitive pricing of homes and how to make a home appealing for showing well to potential buyers.
Whether buyer or seller, using the expertise of a seasoned real estate professional who knows the inside scoop of the Santa Cruz market can be to your advantage. From detailed advice on finding an investment property to staging a home in such a way that speaks volumes to buyers, there are experienced agents for whom you just can't find a better substitute. They will also give you an edge during deal negotiations that will best suit your financial goals regarding market conditions.
Timing is everything in real estate transactions. For instance, listing a property when the inventory is low can have it sell faster and can even create the opportunity for better offers. On the other side, buyers may have room to bargain if there's more inventory available for homes on the market.
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 | Towns near Santa Cruz County
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