Santa Cruz Real Estate Market Update: February 2023

Ah, February. The month for romance and love is definitely in the air right here in Santa Cruz, but is now a good time to fall in love with the home of your dreams? Will home prices and mortgage rates start rising again? How will recently layoffs in the tech industry affect the Santa Cruz real estate market?

Hi, I’m Shemeika Fox, your Santa Cruz Real Estate Expert and Your Personalized Real Estate Concierge.

After being overwhelmed in the housing frenzy of the recent past, Santa Cruz homeowners, sellers, and buyers and renters may be underwhelmed in 2023. The slowdown in Santa Cruz home sales transactions that began as mortgage rates surged in 2022 is expected to continue, leading to a moderation in home price growth and tipping the housing market balance away from home sellers. Mortgage rates have been dropping as inflation reduces, but with a moderation in home price growth, it will not be enough for the housing market to be a buyer’s bonanza.

Instead, Santa Cruz home shoppers will enjoy advantages such as a growing number of homes for sale, but costs are likely to remain high, challenging affordability at a time when overall budgets continue to be squeezed. Prices seem to have stabilized. In some instance, we are seeing multiple offers again. This is property- and price-dependent and not across the board as we were witnessing in the Santa Cruz housing market of 2021 and 2022.

Buyer activity has improved in Santa Cruz. Home price growth is expected to continue slowing. The question remains, however, will we see the market dip, or will prices continue to climb though at a rate less fierce than that of 2021 and 2022? The experts are saying we should expect to see approximately 5.4% increase in home prices for 2023 as a whole. That seems much more palatable than the 23% increase we saw over the last couple of years. The week ending in January 13th saw a 25% increase in mortgage purchase applications from the week before, suggesting that more pending purchases will be in the coming months. However, applications for purchases remain 35% lower than a year ago.

If home shoppers and sellers have unrealistic expectations, they could find themselves in a stalemate in the year ahead. The 2023 housing market could become a nobody’s market, not friendly to buyers or sellers. Consumers who are ready for a challenge will need to update their information on the market conditions, get creative and flexible, and adjust a healthy dose of patience in order to create success in this market. A wild card for inventory growth is seller sentiment and activity. Fall 2022 seller sentiment declined as price growth expectations decreased. Soaring mortgage rates reduced options for home sellers and home buyers.

If seller activity reignites as prices are expected to continue to grow, albeit at a much slower pace, inventory could rise further beyond current expectations. Santa Cruz home sellers should know that fewer buyers are expected to be shopping for a home in 2023 as high home prices and mortgage rates cause some would-be buyers to delay purchase plans. As a result, sellers can expect more competition from other for-sale listings, longer sale timelines, and more negotiation with buyers. Sellers can still have success in this market as long as they approach it with reasonable expectations that are very different from what was the norm less than a year ago.

According to realtor.com, recent sellers more often reported making repairs before listing and were also more likely to make or pay for repairs during the contract period. In short, buyers’ budgets are stretched to the max and sellers who understand this and help buyers get a move-in ready home will have an edge.

Now let’s take a look at unemployment.

Being that Santa Cruz is just a stone’s throw away from Silicon Valley, many Santa Cruz community members are concerned about the current tech layoffs. At the beginning of the year, many Big Tech companies like Amazon, Oracle, Microsoft, Salesforce, and Facebook announced massive layoffs. These companies went on a hiring binge during the pandemic when lockdown sparked the tech buying spree to support remote work from home and an uptick in e-commerce, and now they face revenue declines.

In response to these layoffs, Lawrence Yun, Chief Economist for the National Association of Realtors, said, “Despite the announced layoffs in Big Tech, Wall Street, and the mortgage industry, total job gains have been more significant. In January, net new payroll job gains, those receiving steady W2 statement salaries, totaled 517,000. Net job gains should continue because there are far more job openings than the number of unemployed searching for jobs. Even in the tech sector, those that have lost their jobs are reportedly finding a new job within three months with a comparable salary. Job gains are also good. Home sales and jobs are related over the long term. But over the short term, mortgage rates matter more. Robust job data will raise the prospect of consumer price inflation and the need for more aggressive monetary policy to rein in inflation. So just as mortgage rates were trending down towards 6%, there could be a temporary rise. Still, rents are expected to calm down due to active apartment construction. That will help lower the broader consumer price inflation and halt the Fed rate increases by summer. Mortgage rates can then go below 6%.”

Now let’s take a look at the Santa Cruz County numbers for January 2023.

For single family homes in Santa Cruz County, the sales-price-to-list-price ratio increased from 98.3% the month before to 96%. The average days on market for single family homes for the month of January 2023 came in at 54 days on the market, up from 37 days the month before. The number of active listings for the month of January for single family homes came in at 239 homes and the number of single family homes that sold in Santa Cruz County for the month of January was 62, with the median sales price slightly increasing from $1,152,000 in December of 2022 to $1,160,000 in January ’23.

For condos, townhouses in Santa Cruz County, we saw the sales-price-to-list-price ratio decrease from 100.2% in December ’22 to 99.2% in January ’23. The average days on market for condos and townhomes for the month of January ’23 came in at 38 days on the market. The median sales price for condos and townhomes increased slightly from $812,000 in December of 2022 to $816,000 in January 2023. The number of sales for condos and townhomes for the month of January decreased from 21 in December 2022 to 10 in January ’23.

Thanks for tuning in to this Santa Cruz Real Estate Market Update!

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If you’d like additional information or a market evaluation for the specific property, or if you’d like to get started on a search for your dream home right here in Santa Cruz, please feel free to reach out for a complimentary confidential consultation. I’m Shemeika Fox, your Santa Cruz Real Estate Expert and Your Personalized Real Estate Concierge. And as always, I’m here to help.