Real Estate Market News

By M.C. Dwyer

Septic Disclosure Update

Santa Cruz County just extended the acceptable timeframe for home sellers’ Septic Point of Sale Disclosure from 6 months to one year. The point of sale requirements include leach field flow tests on their ability to absorb a brief plumbing problem. 

The new form still allows a seller to transfer repairs to a buyer. Buyers would be wise to hire a trusted local REALTOR® to help their clients investigate their desired property use and system history with the county, because tests only show the system’s performance at that moment — not past failures or performance during rainy season. Repair costs are expensive and replacement costs can be exorbitant.

Mortgage and Sales Price

Despite the 30 year fixed rate home mortgage averaging 7% over the last month, locally relatively affluent buyers supported county-wide year over year home sales price appreciation of 5% in January (8% in Santa Clara County), outstripping the national trend of about 4%.  

Part of this home price appreciation may be due to a shifting mix of sales: more affluent buyers pursuing more expensive properties. Hyper local statistics, (showing price changes from last year of between -34% in Scotts Valley to +39% for Los Gatos Mountains), are based on too few sales to be statistically meaningful.    

Across the US, buyers paid home prices about 4% higher than last year’s, but sellers accepted a 2% sales price discount. Buyers face affordability challenges since both mortgage rates and prices are higher than last year. Redfin.com explains that macro uncertainty (job insecurity, return to office mandates, and risks of tariffs causing higher inflation), is dampening buyers’ confidence at the same time as more sellers are putting their homes up for sale. Redfin said that more transactions are failing than anytime over the last eight years, while the number of new escrows was the lowest since they started collecting the information in 2012. 

It seems more sellers have given up waiting for lower rates to sell and then buy their next home. As a result, the number of homes for sale keeps rising: nationally, inventory is about 5 months. Locally, many sellers are listing early this year, driving inventory even higher. As a rule of thumb, the market shifts to favor buyers when inventory grows to 6 months or longer.    

While no one can predict the future, single family home (SFH) prices are lower than 3 years ago, and rising inventory may create even more opportunities for buyers. Sellers whose home hasn’t sold within several months may be more willing to negotiate, depending on their personal circumstances.

Rising Insurance Costs Seem Certain

After the devastatingly destructive fires across Los Angeles, it’s become clear the only way the Cal Fair Plan can begin to pay for such staggering losses is to impose special charges on all insurance companies active in California. According to Levi Sumagaysay at CalMatters.org, insurance companies will pass their extra costs along using a “temporary,” first of its kind assessment on home and fire policies. It’s not far-fetched to imagine fire insurance costs continuing to rise. For homeowners on fixed incomes, paying Cal Fair Plan fire insurance rates, on top of regular home insurance, could become unsustainable. As an example, home insurance costs of $1,000/year experienced 15 years ago are now in the neighborhood of $5,000. One sentence from last month’s column bears repeating: By Cal Fair’s calculations, premiums needed to increase by 70% to account for increased risk escalated by climate change’s outsized effects in California. Instead, insurance regulators only allowed a 15.7% increase.

Nationwide rents rose 3.5% over the past year, after nearly recovering from the pandemic spike. New housing construction continues to lag growing demand. Housing scarcity may be even worse in California, after losing about 18,000 homes to the LA fires. Unfortunately, the 45% of California households who rent may face long term higher housing costs, as landlords are likely to pass rising insurance costs on to their tenants whenever possible.   

On the brighter side, the stock market continues to reach all-time highs as the national unemployment rate fell to just 4% and wages increased 4% over the previous year. Consumer Prices rose in January to the highest in a year and a half; inflation measured 3.25%, above the Federal Reserve’s 2% goal. The combination of inflation, a strong labor market and economy gives the Fed less reason to reduce interest rates anytime soon.

Featured photo by Andy Holmes