Santa Cruz Real Estate Market Update: January 2022
What do we have in store for the 2022 housing market! Well, here’s the latest real estate market update! Let’s take a quick look at where we are right now in real estate. It may shed some insight and some light on what we should expect in the upcoming year in real estate of 2022.
Hi, I’m Shemeika Fox, your Santa Cruz real estate expert. Now let’s be clear, my own personal prediction of the real estate housing market for 2022 is that we will continue to see an increase in prices. I believe that what we are going to see in the upcoming year is very similar to what we experienced in 2021, prices going up, interest rates still remaining low, although I do believe we will see some interest rate hikes, but that’s all relative to historical rates. They will still be relatively low. The lack of inventory, the high demand of buyers and low interested rates are a sure sign of the housing market continuing to increase.
According to a recent report from the National Association of Realtors, growth in the housing inventory has slowed over the past decade in the aftermath of the 2008 housing crisis creating an under-building gap of 5.5 million to 6.8 million housing units across the country since 2001.
What else is happening that renders a positive real estate forecast for 2022? Well, rents and housing prices continue to increase due to the low supply and high demand. We are at a 4.2% unemployment rate, which closely matches the unemployment rate back in March 2020 before the pandemic started. Job creation, new jobs coming to the market has mostly continued to increase month over month since the pandemic hit, but we are still not back to normal. We are about 4,000,000 jobs short. The total non-farm payroll, which is the total number of U.S. workers in the economy that excludes proprietors mostly has continued to rise since the pandemic hit.
We see a surge of home sales since the pandemic and this year was the most amount of home sales in 2021, the number of homes sold per year, any year prior in the last 15 years. Median home prices have soared to all-time highs at over $400,000. The National Association of Realtors asked 23 real estate economists and experts about their forecast on inflation. Here is a list of what the experts and economists say. The average was 4%, which, by historical standards, is still high. Ideal inflation is 2%, however, their prediction of 4% inflation is double the ideal rate, but is not as bad as the anticipated 6.8%. You can see from this graph what each of the 23 predicted with the lowest predicting 2.7% inflation rate and the highest at 7.5%, with one extra predicting that, but the average is 4%.
What about home price appreciation? The average consensus is that home prices will rise 5.7% from our expert panel, but remember, last year they predicted home prices would increase by 6.8%, but the actual price increase for 2021 was 20.3%! Here you see one expert on the negative end of the median appreciation, decreasing by 10% and on the positive side, two experts predicted as high as 12% median home price increase. The median panelists agree that the Federal Reserve will be raising interest rates two times next year. That is the average consensus. The average being two, with 11 experts predicting that, but eight experts are predicting only one interest rate hike. It is important to understand that from an affordability standpoint, a consumer buying a home today versus a consumer buying a home a year ago, their payment is going to be less now, even though prices have gone up, since interest rates are so low.
So based upon all this data, with interest rates still incredibly low, and with the number of new homes across the country that are still completely depressed and needing more new homes to support our buyer demand, as well as a fewer number of homes hitting the market, my guess is that the 2022 real estate market forecast is going to be hot, hot, hot, pretty much a replica of what we saw in 2021.
There was so much demand and lack of inventory that prices kept creeping up. Buyers were willing to pay more for homes than what homes were listed for across the board and willing to give sellers pretty much anything they wanted. Sellers had all the leverage and were taking offers with little or no contingencies and the terms of the contract mostly were in the seller’s favor. In my opinion, based upon the data, this year is going to be exactly the same.
So a quick recap, on a positive note, the economy looks good. The tide is rising, buyers want to buy and they are willing to pay a lot. Rates are low and should remain low, relative to historical rates. The market is incredibly attractive to home sellers. Sales will stay competitive, solid and strong next year, or this year, 2022, and home prices will keep rising.
The bad news, and what is dampening our housing market is that we still aren’t building enough homes. There are more buyers than homes. Obviously the pandemic has created challenges for us. It’s getting harder and harder for first-time home buyers to enter the market because of the increase in prices and low inventory levels.
As agents, we need to have a lot of data and do a lot of research prior to giving any information or a forecast of any sort. We need to have credible, reputable information prior to sharing it. This information comes directly from the California Association of Realtors. More homes were sold in 2021 than homes have been sold per year in the last seven years. We’re predicting to end the year selling somewhere between 440,000 single family homes. Prices went up over 11% in 2020 and the forecast was that values and prices would only increase by 6.8%, but actual increase was 20.3% this year. California Association of Realtors feels that home prices are going to continue to rise. Here are some of the factors that have led them to this conclusion.
If you look at this graph, it shows listing active on the market by month. You can see that we are still depressed with inventory, in a quote, unquote, normal market, and the lack of inventory and low interest rates should help maintain a healthy forecast for 2022. Lack of inventory should continue to keep prices increasing.
Here are the reasons why lack of inventory is not changing any time soon, in the last 34 years, California has grown from a 27,000,000 person state to a 40,000,000 person state and we build about 2.5 times fewer homes per year than we did in the 1980’s. So we’ve grown by 13,000,000 people and we are building 2.5 times fewer homes. Lack of supply with increase in demand causes prices to increase, not decrease. California’s dubious record and housing supply and affordability, the state tells us how many homes we need to build in terms of housing affordability and we’ve only hit that number five times in the last 34 years. Although we have about 20% increase in housing permits projected this year, which you would assume is good, but this still leaves us about halfway of where we need to be. Also, home owners are staying in their homes longer than ever before, averaging 11 years, which is not helping with the inventory levels.
So, the housing market forecast for 2022, according to the California Association of Realtors looks good. When predicting what will happen in the future, you need to look at what is happening overall in the world. We are seeing more jobs come in, people are spending money like crazy and life events that have been put on hold, like moving, getting married and having babies, are forecasted to increase.
How is housing going to fare? 2.7 million people lost their jobs back in 2020 at the peak of the pandemic and as of recently, there still are over a million people who have lost their jobs or who have not gotten their jobs back. Keeping this into perspective, there are about 40,000,000 people in California, how is California recovering so fast and seeing such appreciation? The leisure and hospitality were hit the hardest. There are a lot fewer jobs that were lost that were higher income earners.
Also, interest rates come into play when predicting whether prices will go up or down. Rates are historically low, averaging from 2.65% to 3.08% at the end of October. We have the fifth lowest level of homeowner vacancy rates in the nation, the third lowest rental vacancy rate in the nation, all-time low levels of housing inventory in December, an $830,000 record-setting median price in August, second worst state for overcrowded housing, second worst state for percent of rent-burdened households, dead last for supplemental poverty estimates, so the housing market forecast for 2022, according to California Association of Realtors, looks good.
Now for the numbers, check out the overview of the real estate market in California for 2021. Prices went up over 11% in 2020 and the forecast was that values and prices would only increase by 6.8%, but actual increase was 20.3 this year. About 67% of homes that are closing above list price and are still going pending quickly as at seven days on market and now it’s nine days for a home to go pending. Homes are still going pending quickly. More homes were sold in 2021 than homes have been sold per year, in the last years. We are predicting to end the year, selling somewhere between 440,000 single-family homes. We are selling more homes over a million dollars in California than homes under $500,000. Also, we are selling more homes over $2,000,000 in California than ever in history.
If you look at the 2021 fastest growing cities, 69% are over $1,000,000 and 25% are over $2,000,000, all positive signs of the 2022 real estate market to continue to trend up. Bay Area, Orange County, Los Angeles tend to be vacation areas and second homes, which is also conducive to a positive housing market. Housing is growing fastest in California’s core. If you look at home sales growth by broad region, it’s the coastal, and frankly, the least affordable parts of California that are actually doing the best. Bay Area is up 32.8%, central coast is up 26.6%, Southern California is up 23.2%. We’re at all California at 21.3%. As demand goes up for second homes and larger homes because remote work continues to increase, we are predicting this to help the housing market as well. 35% of sellers actually left the state and less than a third of sellers who sold, stayed in their same county. More folks are able to work remotely, so moving away from California has never been easier. This will make it a bit easier for people to find homes who are staying here. 35.5% in 2021 were first-time home buyers. That was more than a third of buyers are first-time home buyers and 32% of them put down 20% or more, which shows they have more skin in the game, so-to-speak. Only 2.7% put down 0% and 4.4% paid all cash as a first-time home buyer.
So the housing market forecast for 2022, according to the California Association of Realtors, looks good. Average income for realtors in 2020 was $180,000, which was an increase in 16.1% from the previous year. However, the average income for the median realtor, the bottom 80% was $35,000, which was a decrease from the previous year by 16.7%. Even in the midst of all the high prices and 15 year high in terms of transactions, 30% of agents are doing about 70% of the deals, which is, on average, of 10 deals per year and the other real estate agents are going to do less that two sides a piece. The conclusion of 2021 saw year over year increases in both median sales price and percent of list price received in December.
All five MLS listing counties saw year over year price gains with Santa Clara at 25%, leading the way, followed by Santa Cruz at 12%, Monterey 11%, San Mateo 10% and San Benito 9%. Another indication of buyer demand, premiums, percent paid over asking price, were also up in all five counties ranging from 101% of list price paid in Monterey and San Benito to 111% paid in Santa Clara County. Half of the homes in Santa Clara County spent eight days or less days on the market, the same as the last month. In San Mateo County, the median days on market was 11 days, which is two days less than last year, indicating continued strong demand. Median days on market was 13 days in Monterey, 16 days in San Benito, 12 days in Santa Cruz County. All counties saw year over year inventory drops, ranging from 22% in San Benito County to 66% in Santa Clara County. Finally, the number one closed sale transactions dropped in all counties except for San Benito, which saw 52% gain versus last year. Monterey dipped less than 1% in year over year sales. San Mateo fell 12%. Santa Clara decreased 14% and Santa Cruz saw 22% reduction compared to December 2020.
In Santa Cruz County, the median single family home sold for $1,200,000 or for 104% of the list price based on 133 sales in December 2021. Inventory decreased by 50% from November and down 59% from December 2020 with 94 homes available compared to 227 homes last year. Average days on market increased by 12 days from 19 to 31 or 63%. Median days on market gained two days from the month before. Number of new listings for the month of December decreased 49% over November and is down 55% from December of last year. Closed sales decreased by 18% from November to 162 to 133 sold. This is down by 22% from December of 2020.
In Santa Cruz County, the median residential common interest home cost $668,500 and sold in eight days for 104% of the list price, based on 36 sales in December 2021. Inventory decreased 47% from November and is down 69% from December 2020, with 21 homes available, compared to 67 homes last year. Average days on market increased by 12 days from 13 to 25 or 92%. Median days remain the same as the month before. Number of new listing for the month of December decreased 51% over November and is down 54% from December of last year. Closed sales decreased 10% from November from 40 to 36 and is down 36% from November 2020.
So there you have it, this month’s real estate market update. If you would like any additional information, or to discuss how the Santa Cruz real estate market pertains to you and your real estate goals, please feel free to reach out for a complimentary, confidential consultation. I’m Shemeika fox, your Santa Cruz real estate expert and as always, I’m here to help.
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