Economic Roller Coaster Impact on Spring’s Housing Market

By M.C. Dwyer

As economic policy changes continue to be announced, the resulting gyrations in financial markets suggest that the latest strategies from the Administration have introduced economic risks and uncertainty. 

“There’s so much uncertainty; things can quickly change,” said Lawrence Yun, chief economist for the National Association of REALTORS®. “Once conditions improve for mortgage rates and inventory, pent-up demand will be unleashed in home sales,” he added.

Economic uncertainty often causes investors to reduce their stock holdings in favor of less risky investments like US treasury bills and bonds. When demand for an asset rises, if supply is steady, prices will rise. When 10 year Treasury bond prices rise, their yields fall, typically resulting in lower mortgage rates.

During the first week in April, mortgage rates dropped to around 6.6%, but by the time of this writing,* they’d bounced back up to between 6.86 – 7%. That brief week of 6.6% rates caused a nearly 25% surge in home loan applications compared to the same time last year. This shows just how rate-sensitive home buyers are now.

On the bright side, due largely to a 6+% drop in gas prices, inflation fell enough to put the annual rate at 2.4% – close to the Federal Reserve’s target. But, it looks like that may be temporary. The Bureau of Labor Statistics noted that groceries, health care, personal care, apparel, and new vehicle prices all went up. Like most economists, Federal Reserve Bank of Boston’s President, Susan Collins, speculated that trade tariffs are likely to increase inflation.    

California Association of REALTOR®s (CAR) economists wrote that, while the labor market is healthy, the number of new unemployment claims may go up as businesses try to adapt to tariff policies. On the bright side, CAR says more people are finding new jobs after becoming unemployed.

Our Balanced Housing Market

Here in Santa Cruz county, the housing market looks balanced – neither favoring buyers nor sellers. At the current sales pace, it would take about 6 months for buyers to absorb the existing inventory of homes for sale. After so many years of sellers being in the drivers’ seat, adopting a new, perhaps humbler, mindset could help successfully selling a home in a balanced market, if it persists.

According to REALIST, based on an analysis of 90 day trends, the number of home sales fell about 43% lower than the first 90 days last year. Pending sales, a leading indicator, were also about 38% lower. On average, homes are taking longer to sell – 43 days on the market. Across Santa Cruz County, sellers got about 96% of their asking price.  

The good news is, for the month of March, Santa Cruz County’s number of home sales rose 7% higher than March 2024, with Scotts Valley up 43%! But, some rural markets are much slower: Los Gatos mountains had 56% fewer sales than last year, followed by Boulder Creek with 33% fewer sales…the San Lorenzo Valley experienced a 21% annual drop: just 11 homes sold in March.   

While Santa Cruz County average single family home prices rose 9% over last March to $1.5 million, Scotts Valley home prices rose 40% to $1.87 Million. With just 7 sales, prices in the Los Gatos Mountains retracted 14%, while San Lorenzo Valley home prices averaged 4% lower than March 2024, at $823,000 – a pocket of opportunity for home buyers.

Faltering Consumer Confidence 

Consumer confidence fell  again in March, for the 4^th month in a row –  a staggering 30% drop since December 2024, according to The University of Michigan. Consumer’s confidence in their job security has fallen for the last 5 months in a row now. Meanwhile, concerns around inflation rose to 6.7% – the highest since 1981 according to CAR, which is expecting “a continued drop in consumer sentiment in the coming months.”

Economic uncertainty affects the housing market: some home buyers may feel nervous about committing right now to one of the largest purchases of their lifetime. Given Santa Cruz County’s average home price was $1.4 million during the first two weeks of April, job security is high on the minds of many buyers. If the pool of buyers shrinks, the number of homes for sale may grow, causing homes to sit on the market longer, resulting in softer sales and prices. 

Who’s selling and why?  

REALTOR.com’s recent survey revealed why people are selling homes right now: Some reasons overlap, so the percentages don’t total 100%

• 33%+ of respondents said they need more space
• 25% said they need to downsize
• 21% are moving for family reasons
• 18% are experiencing a major life event – like kids, marriage or divorce, or inheritance
• 15% said they are moving for work.
• Around 10% said they’re selling because they can’t afford their current home any longer

(Photo contributed)