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Welcome aboard now as we dive right into the burning issue of single-family housing scarcity in Northern California. The appeal of this region, represented by its dynamic and spacious cities, breathtaking scenery, and promising careers, has always been a tempting factor for people of various social positions. Nevertheless, this highly prized region comes with a burden: the housing shortage, as the region struggles to keep up with the snowballing demand for housing, including single-family homes. This demand outstrips the available supply, thus creating a housing crisis of such great magnitude.
The North California region's rapid economic development and growing labor market are well-documented facts. From giants like Apple, Google, and Facebook, which all have headquarters in the area, Silicon Valley has become a top destination for high-paying jobs and business ventures. Consequently, professionals from diverse parts of the globe gravitate towards the region looking for career growth and financial stability, which upscale demand for living units. Let's delve deeper into this and its consequences for the area, communities, and single-family housing sub-sector.
Existing Single-Family Home Owners Are not Selling Like They Were
Many Northern California homebuyers are choosing to hold on to their current houses while purchasing new single-family homes. Because of the present scenario, there is an excess of buyers and a dramatic drop in the number of houses on the market.
A correlation between rising mortgage rates and a drop in house listings is evident. During the third quarter of last year, mortgage rates remained steady at 8% for 30-year fixed home mortgages and 7% for 15-year fixed mortgages.
In contrast, the rates for 30-year fixed mortgages were at 7.08%, and those for 5-year fixed mortgages were at 6.38% one year earlier. Rates are still relatively high now. Interest rates for 30-year fixed mortgages in California are 6.78%, while rates for 15-year fixed mortgages are 6.13%.
Many homeowners prefer to hang onto their mortgages rather than reentering the market and enduring higher rates. Examples of these homeowners include those who bought their homes before the COVID-19 outbreak. The "lock-in effect" describes this common occurrence. The majority of mortgage holders enjoy mortgage rates below 6%. Existing listings would likely have to increase, and the severe shortage of single-family homes would be alleviated if mortgage interest rates fell to a level that benefited existing homeowners, below 5% or close to the rates before COVID. The 30-year fixed rate fell below 3% in 2020 and averaged 3.38% for the year, setting a new low for mortgage rates. In 2021, rates began to climb once again.
Remote Work Revolution and Suburban Migration
The shift to remote work has completely changed how people look at their jobs and has made a real difference in the migration patterns to the suburbs of the Northern California area. Because remote workers can work from home, many professionals aren't tied to urban centers for employment. In contrast, they look for ample space, including designated spaces for work and outdoor activities. Northern Californians fancy the abundant space that single-family homes come with.
Suburban communities such as Santa Cruz and Marin County have become remote workers’ havens, offering a quiet environment without sacrificing proximity to major employment hubs. The fact that people want more time at home for their families and return to better living conditions at home is evident from this trend.
Furthermore, the appeal of suburban living is wider than the career realm. Family people, particularly, like to live in single-family houses, as most are found in neighborhoods with excellent schools, many green spaces, and good community life. They offer plenty of room for families to grow, play, and flourish.
The demand for the roomier living spaces provided by single-family homes in the suburban enclaves of the region will undoubtedly persist because remote work is here to stay, and people in Northern California find urbanized houses quite limiting.
Nevertheless, the situation has somewhat calmed down, and businesses are now returning employees to their offices.
The Impact of the Tech Industry and Economic Resilience
Due to the region's resilient economy, the tech sector has significantly increased demand for single-family homes in Northern California. Silicon Valley, in particular, remains a global epicenter of innovation and economic prosperity, attracting talent and investment from around the world. The influx of high-paying jobs and entrepreneurial opportunities has spurred population growth and housing demand, leading to a surge in the market for single-family homes and other properties. Tech professionals, in particular, are drawn to the region's dynamic job market and entrepreneurial ecosystem, often seeking suburban living options that offer a reprieve from urban congestion while maintaining proximity to major tech campuses and venture capital hubs.
Moreover, the tech industry's influence extends beyond employment opportunities to shape housing preferences and development trends. Tech companies have been instrumental in driving the development of vibrant, mixed-use communities with a focus on sustainability and innovation. This approach aligns with the values of many tech workers, who prioritize eco-friendly living and access to reliable amenities that enhance their quality of life. As Northern California's tech sector continues to thrive, the demand for single-family homes in suburban neighborhoods with a tech-friendly infrastructure is expected to remain robust, further fueling the region's real estate market.
Baby Boomers Are Holding Onto Their Large Single-Family Homes.
Many senior homeowners find selling and downsizing difficult, unappealing, or financially disadvantageous. This is contrary to the market expectation of this segment of homeowners to sell their large single-family houses and move into something smaller.
The reasons are many. The typical monthly rental cost is $2,775 ($ 33,300 per year), which is even higher in bustling cities such as San Francisco. In addition, reports have revealed that in the fourth quarter of last year, a mere 15% of potential homebuyers had the means to acquire a single-family home at the average selling price of $833,170 across the state. That percentage has decreased from 17% compared to the previous year. A buyer must make no less than $222,800 a year to afford a median home in Northern California. This amount translates to afford to pay $5,570 per month ($66,840 annually) for a 30-year fixed-rate mortgage with a 20% down payment and at a mortgage rate of 7.39%.
Now, let's compare the above figure with the expenses associated with owning a home. Even in the most expensive cities, such as San Jose, this amount is considerably lower, averaging $20,655 annually. This includes essential expenses like real estate taxes, homeowner's insurance, and utilities, which total around $17,255, and an extra $3,400 allocated for maintenance tasks like cleaning and landscape maintenance.
It's important to remember that a significant portion of baby boomers have already paid off their mortgages. Therefore, certain homeowners are also impacted by what is referred to as the mortgage lock-in effect. Those who still have mortgages are fortunate to have secured low-interest rates. So, it doesn't make much sense to consider taking out a fresh mortgage, with interest rates now around 7%.
All these factors provide empty-nesters with ample justification to remain in their current homes. Moreover, in northern California, many Boomers are now grappling with substantial capital gains tax bills as they consider selling their homes, which have seen a significant increase in value. This type of tax is imposed on the profit earned from selling a property or investment, such as a house that has appreciated in value.
In addition, finding smaller homes or apartments in the Northern California neighborhoods they have grown fond of can be quite challenging. And given the current property prices and loan rates, there is generally a minimal cost difference between their current home and a smaller one. In addition to the affordability crisis, decades of restrictive zoning laws and regulations that prohibit the construction of condominiums, townhouses, apartments, and other smaller residences that could be suitable for downsizing have burdened the Bay Area and other regions. And the new homes that are being constructed primarily target younger buyers. Besides, many older homeowners, especially those with lower incomes, have limited choices.
Santa Cruz Sanctuary: Single-Family Living's Coastal Escape Beyond Northern California
Do you wish to be the owner of a stunning ocean-view property in Santa Cruz? Are you perhaps attracted to the peaceful environment of San Lorenzo Valley? Whether you are a resident looking for something more or an outsider who fell in love with California, Santa Cruz offers an array of single-family homes that fulfill every taste and preference. Take a look at home listings for Santa Cruz, CA, and the surrounding area, and make sure that you will have the right place to call your home.
With a wide range of properties available, you have plenty of options to consider in downtown Santa Cruz, including condos, apartments, and single-family homes. However, remember that the tranquil charm of small towns near Santa Cruz, CA, can also be quite a charm. West Santa Cruz is a quaint little community close to Santa Cruz with historic beauty thanks to its picturesque homes and winding streets. The City of Capitola, CA, a charming seaside town with a vibrant community only a short distance away, extends an invitation. Capitola Village, California, offers a picturesque setting for residents with its lovely blend of historic buildings, unique shops, and mouthwatering waterfront restaurants. The San Lorenzo Valley is characterized by perpetual serenity, fostered by its winding streams and verdant forests. From the quaint streets of Aptos to the relaxed pace of Soquel, these little villages are full of real estate treasures just waiting to be discovered.
As you go farther from the metropolis, you'll come across a vibrant assortment of other small towns near Santa Cruz that adorn the region. From the rolling hills of Scotts Valley to the picturesque countryside of Felton, each neighborhood has its own distinct personality and allure. Everyone here feels at home in their own little nook because of the linked community mentality and the fact that neighbors share everyday lives. These small towns near Santa Cruz are not only beautiful places with easygoing vibes, but they're also close enough to the city for those who want to get away from the hustle and bustle of city life but still want to experience the thrill of city life every once in a while.
For those looking to live the coastal lifestyle at its ultimate, beachfront Santa Cruz has it all. It's the place to be, from single-family homes with awe-inspiring ocean views to direct access to the sun, sand, and surf. Picture yourself awakening to the rhythm of waves and spending your days sunbathing in your private piece of heaven from the comfort of your home.
Number of Residential Home Listings to Sales
Santa Cruz County, CA
- Time frame is from May 2023 to Apr 2024
- County is 'SZC - Santa Cruz'
- Property Type is 'Residential'
- Results calculated from approximately 2,500 listings
May 2023 to April 2024 Sales Price to List Price
- Time frame is from May 2023 to Apr 2024
- County is 'SZC - Santa Cruz'
- Property Type is 'Residential'
- Results calculated from approximately 1,600 listings
May 2023 to April 2024 Number of Sales to Price
- Time frame is from May 2023 to Apr 2024
- County is 'SZC - Santa Cruz'
- Property Type is 'Residential'
- Results calculated from 1,566 listings
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 |
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