What is Happening with Home Inventory and Pricing?

Who wouldn't want to buy one of those Santa Cruz real estate listings? Redwoods, other forest species, a gorgeous beachfront, enjoyable outdoor sports, and a friendly local population make this region appealing to a wide range of investors. But all these attractions are also contributing to the demand exceeding supply, driving up prices and making housing here highly costly.

In fact, according to UC Santa Cruz research, four out of 10 renters allocate more than 50% of their income to rent. Let's explore this matter in more detail.

Why is there a housing shortage?

While Santa Cruz's buyers may perceive insufficient inventory as an apparent problem, it is a complex issue with no simple solution. There are a few factors to remember regarding the shortage of Santa Cruz homes for sale. .

Economic Factors

Expensive building costs have made the shortage of homes worse. Like other parts of California, land in Santa Cruz County is prohibitively costly, particularly in upscale communities. The state's present pay regulations and the labor scarcity in the construction industry contribute to the high labor cost. Breakdowns in the supply chain and rising demand for building materials have resulted in higher material costs. Even with a few available incentives, these barriers make it hard for investors to develop affordable houses. .

A house in California might run you anywhere from $400 to $1500 per square foot. The average cost to build a home is between $400,000 and $700,000.

• Labor Costs: The construction industry is among the worst hit by labor shortages. This is because there were fewer new hires during the Great Recession, the labor market is aging, and alternative jobs are more competitive. Because of this shortage, salary increases are predicted to persist.
• Cost of materials: Building materials have rapidly increased in price since 2020, with an average increase of 19%. A recent survey indicates that rising labor and material costs have caused building expenses to rise 14.1% over the past year.

Supply and Demand Imbalance

Although the construction of new dwellings has become more difficult due to supply chain disruptions, increased labor expenses (especially from COVID), and rising material costs, these challenges predate the epidemic largely. For many years, the United States and Santa Cruz, in particular, have struggled to supply adequate housing for the country's expanding population, particularly the millennial generation, who recently became of home-buying age. The growing population in prime regions like Silicon Valley and the surrounding area has not kept up with the speed of new housing development. This mismatch and the resulting severe housing scarcity have increased rents and property prices.

Activities of Institutional Real Estate Investors

Institutional investors' activities have also contributed to inventory scarcity for some time. Their business concept is to acquire massive housing units and flip or rent them out for a profit. For instance, according to 2023 Realtor.com findings, these wealthy buyers bought over 8 percent of all properties listed as recently as December 2022, the most December share of investors ever. These investment-related actions have successfully removed these units from the inventory pool of available properties for individual purchasers.

The Great Recession

The Great Recession of 2007-2008, which is still having a detrimental effect on real estate, is an additional significant issue that still suppresses inventory. While new house construction increased in 2005 and reached a high in January 2006, the number of new residences fell significantly, with just 478 being built in April 2009. Although the quantity of new homes being constructed has gradually grown since the Great Recession, it is still far short of pre-recession levels.

High Interest Rates and locked-in low rates

Complicating issues is the current state of interest rates. With mortgage rates rising to 8% in late 2023—the highest level in almost 20 years—hopeful purchasers saw their buying capacity fall. Many potential buyers in the housing sector decided to temporarily halt their search even before rates rose to 6%. There was another, far larger tipping point when the rate reached 7 percent as buyers started to pull out of the market in droves. .

Furthermore, rising mortgage rates continue to discourage owners from selling for fear of losing their locked-in discounted rates. The interest rates on many mortgages homeowners hold are below five percent. Only a few existing properties are available for sale in the current market since many people who would typically be sellers are just opting to stay put.

Historical Factors

Some previous choices have also contributed to Santa Cruz's present housing dilemma. In the 1970s and 1980s, Santa Cruz County's population rapidly increased, raising concerns that it would develop into a sizable bedroom community for Silicon Valley. At the time, there was also a lot of pressure to expand the city's boundaries and to start new projects, such as a nuclear power plant and a "contentious" convention center. .

In response to these pressures, the community supported "Measure J," which voters approved in 1978. This move was made to manage growth better and maintain the county's distinctive identity. This is how Measure J has affected the area: .

• Urban Services Boundary: Under the rules, the county would only extend vital utilities like water, gas, or sewage lines within a certain border. This plan ensured growth stayed inside the defined metropolitan regions by preventing unchecked expansion and protecting open spaces.
• Growth Restrictions: Measure J placed a ceiling on population growth, aiming for a maximum annual rise of about 2% to manage the development rate. This was accomplished by restricting the issuance of new construction licenses outside the municipal bounds, which slowed the spread of development into formerly undeveloped areas.
• Affordable Housing: In addition, Measure J mandated that 15% of newly built homes in unincorporated areas be set aside for affordable housing. Still, because of the loose rules, only around 500 deed-restricted dwellings were built.

Measure J was essential for protecting our county's agricultural and green spaces from rampant development. However, it also caused certain problems, such as limited new construction in some areas and increasing reliance on septic systems in places like San Lorenzo Valley. Water pollution has occurred on occasion, but recent technical and regulatory developments have begun to address these issues.

Governance and Political Issues

The fragmented governance framework for house ownership in the state presents another significant barrier to addressing the counties' housing crisis. A complex web of local, regional, and state organizations that frequently have competing agendas and poor cooperation influence housing policy. .

For example, land-use and zoning decisions are the responsibility of local authorities; state agencies and regional groups, like the ABAG (Association of Bay Area Governments), define bigger housing goals. Because of this fragmentation, real estate construction is often delayed and inefficient. S.B. 8, S.B. 9, and S.B. 10 are recent legislative initiatives that aim to speed up housing development and encourage accountability and openness; however, implementation problems still exist. .

Why Santa Cruz County Remains the Premier Choice for Real Estate Investment and Living

Living or owning a property in Santa Cruz County remains a top choice for many, both locals and immigrants, even amid rising costs and inventory shortages. With its captivating coastal allure, charming towns, and vibrant communities, it’s evident why Santa Cruz homes for remains in high demand. Let’s explore what makes this region stand out and why now could be the ideal time to search for homes in Aptos, Scotts Valley, and the San Lorenzo Valley, among other small towns near Santa Cruz. .

What Are The Opportunities In The Current Crisis?

The limited inventory of homes has created a competitive market. This phenomenon underscores the high demand and desirability of the region as a top place to live. Increased property values from this limited supply make it a wise move for long-term investment prospects. .

Property values in Santa Cruz County have also been steadily increasing throughout the years. Unlike more turbulent markets, the area's steady real estate market offers strong returns on investment. Nestled between the shorelines and the mountains, Santa Cruz County also provides an idyllic lifestyle and outdoor activities. The scenic beauty and outstanding quality of life contribute to its long-term demand. .

Spotlight on Local Towns

Aptos homes for sale offer you a chance to live in a relaxed atmosphere with a stunning coastline. Real estate options range from quaint beach cottages to elegant family homes. Please look for the latest homes for sale in Aptos; you could uncover the ideal property. .

Scotts Valley's undulating hills offer a more tranquil setting than the busy seaside regions. Look through some of the Scotts Valley homes for sale listings if you're looking for a family-friendly getaway or a peaceful escape without giving up on modern comforts. .

San Lorenzo Valley offers a unique way of life with its deep forests and tranquil surroundings. This charming area is worth seeing if you enjoy the outdoors and nature-rich living spaces. Listed homes for sale in San Lorenzo Valley are what you need to start your journey to finding your perfect sanctuary. .

Future Outlook

Despite current difficulties, the Santa Cruz County real estate market exhibits encouraging resiliency. The region's inherent attraction and ongoing infrastructural and community service enhancements point to a healthy market in the future. .

The unparalleled beauty, appealing lifestyle, and promising real estate market make Santa Cruz County a top choice for living and real estate investment. Although costs are increasing and inventory is still scarce, these things only add to the area's timeless appeal. Look through the properties for sale in Aptos, Scotts Valley, and San Lorenzo Valley to find your own little piece of heaven. .

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