West side ADU

Along the fascinating coastline, the charm of Santa Cruz beaches has long been associated with breathtaking beauty and relaxed coastal living. Beachfront Santa Cruz, for example, has always been a popular attraction, luring both locals and visitors. But underneath this beautiful exterior, there is a deep housing crisis that extends far beyond the sandy shoes.

Understanding Santa Cruz: Exploring Small Towns Near Santa Cruz, ca.

The surroundings of Santa Cruz's urban landscape feature a mosaic of small settlements, each adding to the unique charm of the area. Among these treasures is the City of Capitola, CA, which is known for its lovely village atmosphere. Exploring the things to do in Capitola offers an exciting and enriching vacation. Other beautiful small towns near Santa Cruz, CA, include:

These charming little communities, which are close to the energetic metropolis of Santa Cruz, have a lot in common that makes visitors and prospective inhabitants alike want to live there. Beautiful beaches are what Beachfront Santa Cruz is all about; it offers views of the ocean and a vibrant seaside atmosphere. Meanwhile, San Lorenzo Valley, Felton Santa Cruz, and West Santa Cruz, each surrounded by redwood forests, offer serene environments for outdoor enthusiasts and are alluring because of their natural surroundings.

For those looking for a suburban sanctuary, Soquel Santa Cruz and Scotts Valley provide parks and open areas in tranquil settings. With Aptos Santa Cruz completing the mosaic with its charm of a coastal village, these little settlements become a collective sanctuary for those drawn to the natural world, the beauty of the coast, and a laid-back way of life.

Despite the lovely atmospheres that characterize these small towns in Santa Cruz and throughout California, they are not immune to the pressing issue of a housing shortage. The charm of these small towns contrasts dramatically with the harsh reality that many inhabitants and potential migrants face: an acute shortage of affordable housing. The demand for homes outweighs its supply, making it difficult to find someone looking to live in these lovely locations. The contrast between lovely scenery and a stressed property market highlights the crisis's pervasiveness, which affects both locals and visitors drawn to the region's distinct beauty.

A recent report published by the Santa Cruz County Civil Grand Jury exemplifies the difficulties that these lovely small towns near Santa Cruz, CA, face. A good example is the Scotts Valley and the Capitola Village, California, including the City of Capitola, CA. Capitola, with a population of 9,659, and Scotts Valley, with 12,073 residents, have long been grappling with meeting the state's requirements for affordable housing units. The results of the study conducted between 2015 and 2023 indicate that neither Capitola nor the Scotts Valley Real Estate sector has made a noteworthy effort to build residences that meet the needs of people with low or extremely low incomes.

In general, the number of new residences being developed has not kept pace with population growth, which has reached 62,000 in the city and 270,000 in Santa Cruz County. In recent years, the county has added around one housing unit for every ten additional inhabitants.

The Alarming Housing Affordability Problem and the Middle-Class Exodus

If you're looking for a new place to live, dreaming of having your own house, or simply seeking for a nice vacation home in Santa Cruz, here's the truth: living here is expensive. An average home price of $1.5 million and rental rates surpassing $3,000 per month. Even its neighboring city of Watsonville, which is cheaper, has an average property price of $800,000 and an average rent of $2,000. Unfortunately, these costs are out of reach for many low and even middle-income workers, forcing the vast majority, around 60% in the city and 40% in the county, to rent as their primary housing option.

As of the third quarter in 2023, the dream of owning a home continued to slip away, with a mere 15% of homebuyers in the entire state of California able to afford the median price of a single-family home. This represents a decrease from 16% in the second quarter and 18% in the same time in 2012, according to C.A.R.'s Traditional Housing Affordability Index (HAI). It is a dramatic change, comparing these latest numbers to better times, such as the first quarter of 2012, when 56% of Californians could buy a home.

For example, according to the Santa Cruz County Civil Grand Jury Report for 2022–2023, a worker would require a yearly earnings of $400,000 in order to purchase an average house with a $50,000 down payment, which would mean $8,830 in monthly payments. In a similar vein, an employee in Watsonville would need to make $200,000 annually in order to purchase the average house, which has $4,345 in monthly payments.

These numbers show how very little the average pay of common employees—such as teachers, firefighters, school custodians, registered nurses, and drivers of public transportation—means when compared to what it costs to purchase a property in Santa Cruz. For example, the average full-time fireman makes less than $60,000, whereas the income of a teacher is often over $70,000. Even with an average salary of $100,000, owning a house remains a difficulty for nurses.

This affordability crisis casts a challenging scenario for those who actively contribute to the community but find it a struggle to secure a home of their own. With housing costs continually rising, the middle and working class are on a quest for more financially sustainable living spaces. Affordability emerges as a shared concern, driving residents from both Santa Cruz and California toward inland communities and states with lower living costs.

Reliable data shows that the region's primary occupations include low-wage work in retail, food service, and cleaning. As a result, a whopping 63% of renters find themselves in costly living units, with rent exceeding 30% of their income. The repercussions of this trend are widespread, contributing to an escalating homelessness crisis, a surge in poverty rates, and a gradual decline in the overall population.

When diving into the real estate scene, make sure you're not swayed by flashy ads for things such as “cool A.D.U. Accessory Dwelling Units," "nice homes for sale in Watsonville, CA," or "awesome Pasatiempo homes for sale." These ads pop up everywhere, from signs on properties to websites and social media. Being in the know is crucial for making smart choices in the ever-changing world of real estate.

Statewide Impact on Condos and Townhomes

The struggle with unaffordability isn't limited to just a single-family or a vacation home in Santa Cruz; it's affecting the market for condos and townhomes, too. Santa Cruz County mirrors this trend, underscoring the widening gap in housing accessibility across different property types.

Only 25% of California households can afford a standard condominium or townhome. Buyers would need to earn $160,400 per year to afford the monthly payment of $4,010 on a condo or townhome with a median price of $640,000.

Economic Ripples: Rising Interest Rates and Glimmers of Hope

Last year, the Federal Reserve raised interest rates, creating dramatic changes in the home financing market. The current rate for 30-year fixed mortgages stands at 7.8%, the highest in two decades. As a result, potential homebuyers are facing increased challenges, with higher down payments and reduced savings since the COVID era.

Existing homeowners are hesitant to make new property purchases owing to the impact of increased monthly mortgage payments. This hesitation is leading to a drop in the supply of existing homes, particularly in California, where long-term fixed-rate mortgages are common. Notably, the national average 30-year mortgage rate is presently 6.6%, three percentage points higher than the lows seen during the COVID epidemic.

Even thinking about checking out ads for "land for sale," "home for sale," or "best vacation home in Santa Cruz to buy" is making many people a bit anxious because of the rising borrowing rates and increasing costs. Rising interest rates are adding another chapter to the story of Santa Cruz County's housing woes, which already include being among the most expensive places to live. The effective composite interest rate in Santa Cruz recently surpassed 7 percent for the first time in more than two decades. It reached 7.14 percent in the third quarter of 2023, up from 6.61 percent in the second quarter of the same year and 5.72 percent in the third quarter of 2022.

Renters often bear the brunt of rising mortgage payments as landlords are forced to shoulder increasing borrowing rates. This compounds the financial strain on those who have chosen to rent for its flexibility, pushing the dream of affordable rental living further out of reach. This is a major issue for many people, even those with many sources of income.

Many homeowners received extremely low 30-year fixed-rate loans or refinanced their houses at 2.5% to 3% interest rates a few years ago. Thus, there aren't many properties for sale. This shortfall is projected to remain for quite some time, exacerbating the already stressed housing market.

The Bottom Line: Navigating the Future

While enjoying the lovely Santa Cruz beaches, exploring a winery in Santa Cruz, taking in the calm of Capitola Village, California, or hiking in Santa Cruz may provide a little respite, the larger the housing crisis in the metropolitan area and small towns near Santa Cruz requires real and long-term solutions.

The cooperation among communities, local governments, and innovative urban planners is critical. Addressing the housing deficit, supporting sustainable housing construction, and exploring innovative solutions such as (ADU) accessory dwelling units may all help to create a more equitable and resilient housing landscape.

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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