By M.C. Dwyer
Let’s look at the reasons why home prices keep rising in Santa Cruz County.
|Average Home Sales Price 3rd Quarter 2021 *||Average Home Sales Price 3rd Quarter 2020|
|San Lorenzo Valley||$885,976||$754,768|
|Santa Cruz County||$1,355,142||$1,203,893|
|Santa Clara County||$2,022,547||$1,718,857|
Pandemic mass migration – People were home more than ever, homeschooling and working. If their employers allowed working at home, those who were financially able reevaluated where they wanted to live. Some left cities looking for rural areas with more outdoor activities, larger homes and bigger yards. Santa Cruz County is an obvious choice, compared to more expensive Silicon Valley, the Peninsula, or San Francisco. In August, Santa Cruz County had the highest growth rate in California!
Low interest rates – To keep the economy stable during the pandemic, the Federal Reserve adjusted their strategies. As a result, mortgage rates fell to all-time lows. Buyers flocked to lock in these low rates!
Fewer homeowners are selling, but the number of buyers rose – It’s an economic principle that low supply and high demand will force prices up. Across Santa Cruz County, there were about 10% fewer sales during the third quarter 2021 (versus 3rd quarter 2020), and prices rose 12.5%. San Lorenzo Valley bucked the trend: about 10% more homes sold. Still, with more buyers than sellers, average SLV home prices rose about 17%.
Home building lags job growth – Materials prices rose over the last year on high demand plus supply disruptions. Meanwhile, there’s a shortage of construction labor. In California, thousands of homes were lost to fires, increasing the squeeze, and we’re discovering how long it takes to rebuild.
Fall outlook – The pace of home sales began to slow late this summer. Experts expect sales to continue to slow till year end, beyond the normal seasonal slow-down. Lower demand doesn’t mean prices will fall, but it could mean fewer offers on any given house. Still, one leading indicator of buyer demand is the rate of new mortgage applications, which is the highest since April. Once the US economy stabilizes, the Federal Reserve will reverse course leading to higher mortgage rates. Once rates go up, prices could begin to adjust downward because the monthly payment on the same priced home will be less affordable.
Despite dramatic price increases, experts say there’s little reason to expect a crash, since loan criteria became stricter after the last crash. Only about 3% of mortgages are in forbearance despite the pandemic because buyers favored safer fixed rate mortgages. During the speculative years before the last crash, many loans had variable interest rates: when rates went up, buyers defaulted, and lenders foreclosed. Still, there are always unpredictable factors like the specter of US government debt default and real estate risks in China that have international repercussions.
Rebuilding – The Recovery Permit Center has issued only 40 rebuild permits so far, out of about 950 homes lost to the CZU fires. When I asked them what was happening with the rest of the people who lost homes, they said most homeowners are still working on their Pre-Clearance to rebuild.
There’s nothing new happening on my husband’s rebuild; the experts we hired took other jobs while we waited for our pre-clearance. They won’t have time for his project until late October (hopefully). Regardless, his mortgage payments are due now. At least it’s encouraging to see friends sharing pictures on social media as they work to rebuild their homes.
“M.C.” (MaryCatherine) Dwyer, MBA, REALTOR®, CA DRE License 01468388, mcdwyer.com
Featured image by MC Dwyer: Pending sale in Lompico asking price $950,000
Sources: MLSListings.com Single Family Homes through 9/22/21, REALTOR.com, CAR.org, Mercury News, Mortgage Bankers Association. The statements and opinions contained in this article are solely those of the individual author and do not necessarily reflect the positions or opinions of eXp Realty, LLC, or its subsidiaries or affiliates (the “Company”). The Company does not assume any responsibility for, nor does it warrant the accuracy, completeness or quality of the information provided.