Santa Cruz Real Estate Market Update: August 2021
Welcome to Fox Realty Group’s August, 2021 Santa Cruz Real Estate Market Update for the second quarter prepared by Elliott Eisenberg, PhD of MLS listings, Partner Economist. The national economic overview for 2021 quarter two GDP growth will most likely exceed 9% and possibly even a mind blowing 10% encouraged by the residual effects of the $1.9 trillion American rescue plan, improving vaccination rates, improvement in job creation, high levels of savings and a strong demand for dining, travel and other services that were largely off limits until just recently.
I’m Shemeika Fox your Santa Cruz Real Estate Expert. That is a look at quarter two. Let’s see what Dr. Eisenberg is predicting for both quarter three and quarter four. 2021 quarter three GDP growth should weigh in at close to 8%, and 2021 quarter four should close out the year at better than 6%. At worst, this year will experience the highest rate of growth since the recovery from the double dip recession of the early 1980s. And at best it could be the strongest since the very early 1950s.
As for inflation, while it has certainly made its presence felt over the last few months by quickly doubling from 2% to 4%, the Fed has been absolutely masterful in reassuring investors and markets that this inflationary pressure is short-term and will subside over the next year. In addition, bond markets are beginning to factor in the realization that GDP growth in 2022 and 2023 will steadily slow and end up no greater than two and a half percent. As a result, interest rates have remained pleasantly unchanged despite the rising inflation.
Next on the Fed’s agenda is tapering their purchases at $80 billion a month and in treasuries and 40 billion a month in mortgage backed securities, which should commence in early 2022. With interest rate hikes starting in 2023, I expect the ten-year treasury rate will end in 2021 up by a quarter point, as the economy returns to a post pandemic normal spending patterns are undergoing change.
To wit, real consumer spending in May fell 0.4% month over month. This decline was not across the board. Real durable goods spending declined 4.3% while real spending on non durables ease 0.5% in a preview upcoming attractions. Real spending on services, which is 60% of overall spending rose 0.4% during a strong shift away from purchases of goods and towards services. This increased spending on a service is being driven largely by households with incomes greater than $200,000, who boosted restaurant spending by 16% and with saving rates 50% above pre-pandemic levels. There’s clearly more gas in the tank. Add strong job creation; adding between 500,000 and 750,000 new jobs for the rest of the year, and the unemployment rate should decline from the current 5.9% to 4.6%.
As for housing, I expect both existing sales and housing starts to remain unchanged through the end of 2021 legislatively the $300 billion five year Surface Transportation Investment Act of 2021 is working its way through Congress. More over, it also seems that a much larger Bipartisan Hard Infrastructure Bill, which will include spending on bridges, broadband airports, and rail among other things, totaling $1 trillion, has the votes to also become law. More over efforts are being made to pass a similar size, if not much larger, Soft Infrastructure Bill along strictly bipartisan lines clearly Congress is in a mood to spend money, which will boost GDP growth some over the next five to eight years. Lastly, Congress must also soon vote to increase the debt ceiling, which they will do, and ideally pass a budget before the new fiscal year starts on October 1st, 2021. If a budget is not passed, Congress will do what it usually does and pass a continuing resolution to keep the government operating. There appears to be no stomach for any budget or debt ceiling antics.
Quarter 2, 2021 regional economic overview in examining the MLS listings service area real estate market for the second quarter of 2021. Dr. Eisenberg comments, “In a surprise to absolutely no one, prices across the MLS listing service area continue to appreciate at levels generally exceeding the national average, driven by low interest rates and despite incredibly limited inventories of available homes, buyers show no signs of pulling back from the market. In fact, their willingness to pay more than listing price across the board and to make buying decisions in less than 10 days shows the tenacity of buyers.”
The compelling story of this quarter is the amazing amount of real estate that changed hands across the region. With $16.5 billion in combined sales volume across the five counties; Santa Clara county, Monterey county, San Benito county, the county of Santa Cruz and San Mateo county. While in imperfect comparison, the MLS service areas alone would have had annualized GDP greater than Costa Rica or Panama. Despite the headlines about wildfires, national politics and mass out migration, a recently released study by the University of California confirms what multiple other studies have shown namely that there is no evidence of an abnormal exodus out of the state. Particularly amongst the high wealth individuals further, California remains a highly attractive state for technology and venture capitalists.
Most interestingly from an MLS service area perspective, the study reveals that the two thirds of the individuals leaving San Francisco moved to the neighboring 11 counties. Dr. Eisenberg notes that at this point, buyers are willing to look in leafy areas for their post-pandemic lifestyle and MLS listing service areas with its proximity to San Francisco checks the boxes for many tech workers who wanna take advantage of employers work-from-home policy, but may still need to go into the office periodically.
As has been the case since nearly the beginning of the pandemic, the stock market has performed well, which has aided the region. While interest rates went up early in 2021, which portended bad news for tech stocks. The recent decline has additional fuel to tech stock valuations. Dr. Eisenberg notes, “It appears as though the interest rates fears of early 2021 are firmly in the rear view mirror, giving added fuel to the MLS listing service area real estate market.”
Now, Check out the Santa Cruz real estate trends right here. This is what’s going on. Santa Cruz county saw the highest level of single family median price appreciation across the region. With median sales price gaining 37.6% over last year to $1,245,000. An average price up 32.5% to $1,355,980. Dr. Eisenberg commented, “I suspect the Santa Cruz real estate market perform so well this quarter at least in part because home prices are meaningfully less here than in San Mateo and Santa Clara counties.” Median days on market in Santa Cruz slid below 10 for the first time and homes generally sold for a strong 8% over listing price. A new record for the county. Closed sales were up significantly compared to last year. And we’re at the highest level since 2015. New listings also rose to a more normal level of 774. Inventory levels declined compared to last year. And just 1.6 months, supply of inventory is available.
Common interest home prices in Santa Cruz were up smartly with a median sales price of $750,000 at 17.2% over last year and an average sale price of $862,000 up 19.6%. Properties generally sold about 4% more than their listing price. And on average in just eight days, both all-time records in terms of inventory. The common interest market is possibly tighter than the single family market in Santa Cruz with active inventory at the very low end of the range and with just 1.2 months of supply of inventory.
Thanks for tuning into the August 2021 Santa Cruz Real Estate Market Update. Feel free to reach out for a complimentary confidential real estate consultation. I’m Shemeika Fox, your Santa Cruz Real Estate Expert and as always, I’m here to help.
