California Housing – A Story of Strain and Strength
Today’s housing market is facing a “triple threat” — rising prices + insurance premiums + interest rates
By M.C. Dwyer
From the rural Santa Cruz & Los Gatos Mountains through Scotts Valley and Santa Cruz, my review of May’s MLS single family home sales in our micro-region revealed a telling trend: 70% of the 74 homes that sold, sold for over $1 million. Another 8% sold in the $900,000 bracket, leaving just 22% of sales across the $500,000–$800,000 sector. Three fixers-uppers sold at +/- the $300,000 level.
Our market is luxury-leaning — this isn’t surprising given the disproportionate burden on buyers in the “affordable” market of today’s 7% home mortgage plus high costs of fire insurance. In our region, the number of home sales declined 15% compared to the same time last year when 86 homes sold, taking an average of 25 days to go into escrow with a buyer.
Sale prices across Santa Cruz County rose about 4% over he same timeframe last year. Across California, however, median prices fell by 1% to $900,000, on 4% fewer home sales. The number of California’s pending home sales — a leading indicator for the future — have fallen for the 6th consecutive month.
The future of the housing market is marked by uncertainty: Redfin’s CEO said housing is facing a “triple threat” — rising prices + insurance premiums + interest rates. Fortunately, California’s relatively strong job market helps support buyer confidence. Yet, only 26% of consumers believe “now is a good time to buy” ― but that’s the highest level since February 2022! Continually rising inventory — more homes for sale than buyers — indicates we’re in a buyers’ market. Now, buyers often have more time to look around before they decide, so it’s absolutely essential that homes are properly prepared for market and priced well compared to the competition. Very few buyers face enough competition to have to pay a premium over asking price — on average, sellers received 100% of list price. Unfortunately, the MLS doesn’t consider price reductions as part of this calculation. More than likely, buyers who’ve submitted the only offer on the table may even be able to negotiate assistance from the seller to lower their mortgage rate.
The Economy
Globally, tariff concerns continue to rattle companies and stock markets, despite the 90 day push-back. During 2025’s 1st quarter, the US economy contracted slightly: some experts are concerned the 2nd quarter could also contract, although opinions vary.
Meanwhile, the Federal Reserve decided to hold their funds rate steady, based on lingering inflation and concerns around the jobs market. Most economists currently think home mortgage rates will remain stubbornly above 6% this year.Today’s home buyers are facing resiliently high home prices, so that 6.8%- 7% mortgage squeezes affordability — particularly for the entry level buyer. Today’s home prices feel much more expensive now that mortgage rates have essentially doubled compared to the low-rate loans available during the pandemic, (when the Fed dropped their lending rates dramatically to keep the economy from collapsing). Historically though, 8% was considered an excellent mortgage rate! Some of us remember the days of 17-19% mortgage rates. Great REALTORS® will offer strategies to help offset today’s mortgage rates, helping both buyers and sellers.
Santa Cruz Mountains Outlook
- Mortgage rates: Likely to stay in the “high 6%s” in 2025 with only modest relief to the lower 6% range by year-end, or sooner if the economy weakens.
- Wildfire/insurance ripple: Expect continued pressure on premiums and underwriting as the California insurance market struggles. Today’s high costs are a deterrent especially for the affordable segment. As long as that sector is suppressed, it creates a domino effect because those home sellers find it challenging to move.
- Home prices: Inventory of homes for sale is growing because the rate of sales is declining. About 35% of County sellers have already dropped their asking price. That percentage rises to 40% for the San Lorenzo Valley and 50% in Boulder Creek.
*as of press deadline 6/18/2025
Send your questions & topic requests to “M.C.” (MaryCatherine) Dwyer, MBA, REALTOR® mcdwyer.exprealty.com. CA DRE License 01468388 | EXP Realty of California, Inc. Serving San Lorenzo Valley, Santa Cruz Mountains, and Scotts Valley since 2005
Sources: Bank Rate, California Association of REALTORs®, CNBC, MLS Listings Inc., Mercury News, Mortgage News Daily, Mortgage Professionals of America, National Association of REALTORs®, Newsweek, Reuters
The statements and opinions contained in this article are solely those of the individual author and her sources, and do not necessarily reflect the positions or opinions of eXp Realty, LLC, or its subsidiaries or affiliates (the “Company”). Neither the author nor the Company assumes any responsibility for, nor warrants the accuracy, completeness or quality of the information provided. Readers’ unique situations merit obtaining individualized professional advice.
Photo: Hans Isaacson
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