Santa Cruz Real Estate Market Update: January 2023
It is certainly cold out there, but I’m gonna keep you hot, hot, hot with this January 2023 real estate market update. Is 2023 the year of the home buyer, the home seller, or both? Happy New Year! Now that 2022 is behind us, what are forecasters predicting for the 2023 housing market?
I’m Shemeika Fox, your Santa Cruz Real Estate expert. Will it be the year of the home buyer, home seller, or both?
According to Danielle Hale, chief economist at Realtor.com, she says, and I quote, “It is going to be a tough year overall for both buyers and sellers, but we are going to see a better balance between the two.” We feel that most of the dramatic shifts in the 2022 market will taper off.
Sellers will continue to see home prices keep climbing at a moderate rate, but with longer days on the market. We anticipate that sellers can expect to see home appreciation rise around 5.4% this year, which is a significant drop from previous years, but not a drastic decline as initially predicted. Homeowners should continue to see their home equity rise this year to an average of about $25,000.
For buyers, we expect that we will see more inventory of homes on the market. In fact, housing inventory is predicted to be up 22.8% from 2022, giving buyers more homes to choose from. This increase in inventory is still lower than pre-pandemic, which will also help sellers. Mortgage rates are predicted to remain high, averaging about 7.4% for most of the year, and then taper off. This could affect overall home affordability, making fewer people able to buy.
Combining all these factors, it’s no wonder it would be the year for both the home buyer and the home seller. With that said, there is also chatter that we have reached the bottom of the market. According to a statement released on Wednesday, the National Association of Realtors Index, pending home sales fell 4% this month to the lowest since before the pandemic for records dating back to 2001. Although the decrease exceeded all predictions from an economist survey conducted by Bloomberg, many feel that we are very close, if not already, at the bottom of the real estate market. This means that better times for housing may lie ahead in 2023. The aggressive tightening effort by the Federal Reserve to control inflation significantly affected the housing market in 2022.
Home sales and consequently, prices, have been falling for months as borrowing costs have approximately doubled from where they were at the beginning of the year. “There are approximately two months of lag time between mortgage rates and home sales,” says Lawrence Yun of the National Association of Realtors’ chief Economist. “With mortgage rates falling throughout December, home buying activity should inevitably rebound in the coming months and help economic growth.”
When mortgage rates spiked above 7% in October and further limited demand, annual price growth in the US housing market fell into the single digits for the first time in roughly two years. A pair of highly monitored surveys indicated that on Tuesday. The S&P CoreLogic Case-Shiller Home Price Index saw its first single digit gain since November of 2020 in October, rising 9.2% as opposed to 10.7% in September. This is the Index’s first non-double digit gain since September of 2020. The annual home price increase rate decreased to 9.8% in October from 11.1% in September according to the Federal Housing Finance Agency.
The Fed’s aggressive interest rate increases intended to lower high inflation by reducing demand in the economy have negatively impact the housing market. The Fed increased rates by half a percentage point this month, capping a year that saw its benchmark rate grow at the fastest since the early 1980s, from nearly zero in March to between 4.25% and 4.5%. In 2023, rates according to Fed experts will likely reach 5%.
The National Association of Realtors predicted earlier this month that existing home values, which comprise the vast majority of the market, will stay steady in 2023. Lawrence Yun, the chief economist for the National Association of Realtors, gives five main indicators of why this market correction is not the same as the 2008 housing crash. Our labor market remains strong.
The 2008 crash had 8 million job losses in a single year. While we have had some layoffs, we have not accumulated enough to cause a net job loss. Our strong job market looks good for housing. Loans have been updated and are not as risky anymore. Subprime loans were extremely prevalent in 2008 and are basically non-existent today. Before the 2008 crash, new home construction reached 7.65 million units yearly. We are currently seeing 4.6 million new homes built annually. Yun says this points to a massive housing shortage. Mortgage borrowers are doing better as well. Around 10% of borrowers were delinquent on their loans during the previous housing crisis.
Today, the mortgage delinquency rate is holding at historical lows of 3.6%. The last indicator is that we are looking at ultra low foreclosure rates. In the last crash, foreclosure rates we are approaching 4.6%. Today, we only see 0.6% of homes in foreclosure. Current foreclosures are also at historical lows.
Now let’s take a look at the Santa Cruz County numbers for December 2022:
- For single family homes in Santa Cruz County, the sales-price-to-list-price ratio dropped from 100% the month before to 98.3%. The average days on market for single family homes for the month of December 2022 came in at 38 days on the market. The number of active listings for the month of December for single family homes came in at 216 homes, and the number of single family homes that sold in Santa Cruz County for the month of December was 85, with the median sales price dropping from $1,230,000 in November of 2022 to $1,152,000 in December of 2022.
- For condos and townhomes in Santa Cruz, we saw the sales-price-to-list-price ratio increase from 99.3% in November 2022 to 100.2% in December 2022. The average days on market for condos and townhomes for the month of December 2022 came in at 31 days on the market. The median sales price for condos and townhomes dropped from $856,430 in November 2022 to $812,000 in December of 2022. The number of sales for condos, townhomes for the month of December increased from 20 closed sales in November 2022 to 21 in December 2022.
Of course, Santa Cruz is a very unique market and each property requires specific analysis and research. This is simply a market overview for Santa Cruz County in general. If you would like additional information or any evaluation for a specific property, 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.
