Housing Market and Economic Update

Fresh Momentum, but Lingering Questions

By M.C. Dwyer

The market is waking up. Here in the Santa Cruz mountains, the shift feels tangible. Buyers are re-emerging from their winter hibernation. Homes with character, cared-for land, or irresistible “mountain charm” are drawing interest. Recently, a home in Boulder Creek sold for about $200,000 over asking – but that’s not typical. Make no mistake: today’s buyers are sharp. They’re running the numbers, watching their budgets, taking the time to compare properties, and zeroing in on real, tangible value. 

Adding fuel to this cautious optimism: a notable recent spike in weekly mortgage demand. According to a CNBC report citing the MBA, applications to purchase a home jumped 11% in the first week of May and are 13% higher than the same week last year. This came despite lingering economic uncertainty, including the actual contraction in GDP growth during the first quarter and a contracting manufacturing sector. What drove the surge? A dip in mortgage rates — small, but meaningful — and an influx of conventional loan applications, typically preferred by move-up buyers with larger loan amounts.

Mortgage Rates: High, Sticky, and Still Running the Show

Mortgage rates continue to hover near recent highs:

• 30-year fixed (conforming): 6.84%
• Jumbo loans: 6.85%
• 5/1 ARMs: 6.09% (notably higher than last week)

While rate drops have been modest, they’ve been enough to spur some movement. Conventional loan demand in particular has climbed. But for many, even a slight rate dip can change the math enough to spark action.

Still, rates remain elevated, and it’s common to see buyers paying points just to reach these levels. That makes comparison shopping and smart financing strategies more important than ever. Adjustable-rate mortgages (ARMs) are back on the table for some, especially those who believe they’ll refinance within a few years. Many local REALTORs feel like this is a great time to be  a buyer, since there is not as much competition as there will be if/when mortgage rates fall.

In short: buyers are still price and mortgage rate sensitive, but are increasingly leaning in rather than sitting out. They are stretching to afford the best home they can, and they need to feel great about where their money is going. Buyers have seen so many “model-like homes” on TV shows about home shopping, that some have developed unrealistic expectations for how homes should show. For sellers, the takeaway is clear: preparation, presentation and pricing all need to align.

Inflation Inches Down, But the Fed Hits Pause

Some cautiously good news on the inflation front: we’re now at 2.3% year-over-year nationally, a four-year low. In the Bay Area, it’s even better — just 1.3%. That’s largely thanks to falling fuel prices (gasoline is down nearly 10%), which is welcome relief for commuters and companies alike.

Still, the Federal Reserve isn’t ready to call it a win. Food and housing costs remain stubborn, and while some investors and financial experts had hoped for a rate cut by summer, most now expect the earliest move to be in September — and even that is likely to be just a small step, perhaps ¼%.

Fire Insurance: A Hot Concern for Rural California Homeowners

We rural homeowners are staring down a new curveball – and it’s a fast pitch. State Farm has just been approved for a 17% rate increase starting June 1. That’s the steepest rate hike in recent memory and comes after the insurer stopped issuing new home policies in California altogether last year. As the state struggles with fire losses far exceeding Cal Fair Plan’s financial capacity, and just a handful of insurance companies writing new policies, the decision was made to allow State Farm to increase their rates quickly, in exchange for their commitment to issue more policies in California. This unprecedented decision takes effect by the time this issue hits the stands, without regard to the fact that the State Insurance Department has not reviewed or approved State Farm’s latest financial models yet.

The reason? Ongoing wildfire risk and mounting underwriting losses. Other insurers are watching closely, and further ripple effects are likely.

If you’re in the mountains or other high-risk areas, this isn’t theoretical — it’s a budgeting reality. Higher premiums drive up monthly payments, reducing buyer interest in some situations. Properties must meet eligibility criteria to get coverage, sometimes causing delays in the escrow. That’s why proactive fire safety steps like home hardening, defensible space, and a smart insurance game plan are more crucial than ever. 

Policy & Homelessness: A Bigger Picture Worth Watching

Beyond interest rates and inventory, California’s housing challenges remain front and center. The state’s homeless population rose 3% last year, with the Bay Area seeing a 6% increase. The vast majority of those individuals remain unsheltered. Some have recently lost their jobs or become under-employed, while those that tend to be on the streets for years fall into many categories: loss of confidence and self respect, the chronically unemployed, and many suffering addiction, mental illness, or simply preferring to be outdoors. Homelessness is not a crime, yet there has been talk of making arrests.

Governor Newsom is pushing for stricter encampment bans, but many argue that, without significant increases in shelter capacity plus more affordable housing, these policies simply push the problem down the road…literally. Cities remain caught between court rulings, budgets, NIMBY’s (Not in My Back Yard) and competing pressures.

Why does this matter to you as a prospective home buyer, seller or homeowner? Because housing policy isn’t just a news story — this is about human beings. It shapes public perception, local conditions, and, in some cases, property appeal. Buyers ask about it. Sellers worry about it. Being informed helps all of us navigate these waters with more clarity and confidence.

Global Trade Tensions Ease — For Now

On the international front, there’s a bit of a breather: the U.S. and China have agreed to a 90-day cooling-off period on new tariffs. It’s a modest move, but one that seems to be helping settle some investor nerves.

The real estate connection here is indirect but real: calmer trade relations can ease inflationary pressure, which in turn may influence mortgage rates. No guarantees — but in a market looking for any sliver of good news, it’s a welcome development.

The Bottom Line

If you’re living in a home that doesn’t fit your needs anymore, and wondering if now’s the time — it just might be. The market has more momentum. Buyer interest is climbing. The number of homes for sale has grown, enough to bring the market into balance between buyers and sellers.    Still, inventory remains below historical norms. Interest rates, while high, have ticked down just enough to stir meaningful activity.

This is a market that rewards preparation, savvy, and solid advice based on experience. Getting top dollar means more than just sticking a sign in the yard. It means understanding how buyers are thinking, how insurance and financing might affect your sale, and how to best prepare and market your property, so it feels like home to the right buyer.

If you’re thinking about a move, my partner Genevieve Jordan (CA DRE License01709237) and I would love to be your resource. No pressure, just real insight to help you make the best decisions, so you can write your own next chapter.