Santa Cruz Real Estate Market Update: March 2023
Given the current economic trajectory and the fact that interest rates have been bouncing between 6% and 7% well into 2023, it certainly seems likely that the economy will continue to weaken. So what’s ahead for 2023, a deep recession or a soft landing? I want a soft landing. And will the housing market continue to be a nobody’s market here in Santa Cruz with neither buyer nor seller willing to surrender what little control they have?
Hi, I’m Shemeika Fox, your Santa Cruz real estate expert and your personalized real estate concierge.
Let’s see what experts are saying about the Santa Cruz housing market and the economy.
Partner economist with the MLS, Dr. Elliot Eisenberg, my favorite, recently released his quarter 4 2022 national economic overview, and he made a lot of very interesting statements. Looking back at 2022, the economy was somewhat terrible in the first half of the year with negative GDP growth in both quarters actually.
While in the last half of the year, we saw very strong GDP. 22Q3 growth was about 3.2%, and while we don’t yet know what 22Q4 will look like, early estimates suggest 2.5% to 3%. However, Dr. Eisenberg suggests the important thing to remember is that the economy was not nearly as bad in the first half of the year as the numbers suggested and the second half of the year was not nearly as strong as the numbers may imply. When taken together, the picture is of an economy that is slowing somewhat disastrously but certainly starting to moderate from the frenzied post-COVID pace. Dr. Eisenberg is predicting that the Fed will increase rates further in the first quarter of 2023 to address continuing services inflation and then keep them at that elevated level through all or most of the year and see how services inflation responds.
Will this lead to a deep recession or a soft landing?
That is a really good question I’d like to know. While most economists expect recession in 2023, some are predicting the hoped for soft landing. That said, the difference between these two alternatives is likely to be small. Those expecting a recession, a mild one, with unemployment rising two to maybe two and a half percentage points and the no calendar year 2023 GDP growth, those forecasting a soft landing see unemployment rising by one percentage point and GDP growing slightly.
Dr. Elliot Eisenberg feels the most important story to watch though in the housing market is the amount of inventory at the national level. We have a bit more than three months of inventory on the market, which is currently still well below the commonly accepted healthy level of about five to six months of inventory, and that is why prices have stayed at historically high levels.
So ultimately, what is Dr. Elliot Eisenberg predicting? “In terms of a forecast for the housing market in 2023, I think we will start to see improvement toward the end of 2023 if inflation continues to slow to the point where the Fed can begin signaling a true pivot to lower rates. Home prices may well decline for several more months, but it’s hard to see the declines going much longer and should be relatively shallow, perhaps an additional four to five percentage points.”
What does this mean for the spring market?
In research done by First American Finance Corp as of 2022, 84% of all existing mortgages have interest rates at or below 5%, and 63% have rates at or below 4%. “There is a financial disincentive for homeowners locked into low mortgage rates to sell their homes and acquire a new home at the higher rate,” according to First American Deputy Chief Economist, Odeta Kushi.
According to Orphe Divounguy, Zillow’s senior economist, a competitive shopping season, despite the lack of available Santa Cruz homes, may be in our future. Shoppers may experience competition for reasonably priced properties without the vast groups of potential Santa Cruz home buyers that swarmed open houses in 2021 and early 2022. This upcoming spring home shopping season should feel a little quieter than in prior years. “Perhaps surprisingly, data suggests that many shoppers are still finding success in this challenging market, with homeownership rate notching its highest fourth-quarter reading in over a decade of 65.9%,” says Realtor.com economist, Jiayi Xu, in her analysis of housing data from February. In fact, the number of homes for sale is notably higher at 67% from one year ago, and that’s mainly because listings are sitting on the market a little bit longer. And that inflated inventory has resulted in slow year over year asking price growth of just 6.5%, the lowest pace since June of 2020.
At first look, this might seem like bad news for weary sellers, however, it indicates that the market is course correcting, which will ultimately be good for sellers and buyers alike. “January sales data shows a continued decline in sales of existing homes, but at a slower pace,” says Realtor.com economist, Jiayi Xu. “While sales aren’t returning to pre-pandemic levels anytime soon, there are reasons to suspect that the worst of the downturn may be in the past.”
Now let’s take a look at the Santa Cruz County numbers for February, 2023.
For single family homes in Santa Cruz County, the sales price to list price ratio increased from 96% the month before to 98.8%. The average days on market for single family homes for the month of February, 2023 came in at 48 days on the market down from 54 days the month before. The number of active listings for the month of February for single family homes came in at 190 homes, and the number of single family homes that sold in Santa Cruz County for the month of February, 2023 was at 58, with the median sales price slightly increasing from $1,160,000 in January, 2023 to $1,200,500 in February, 2023.
For condos and townhomes in Santa Cruz, we saw the sales price to list price ratio increase slightly from 99.1% in January, 2023 to 99.8% in February, 2023. The average days on market for condos and townhomes for the month of February, 2023 came in at 66 days on the market, up from 38 days in January. The median sales price for condos and townhomes increased from $816,000 in January, 2023 to $850,000 in February, 2023. The number of active listings was 34 and the sales for condos townhomes for the month of February increased from 10 in January, 2023 to 15 in February, 2023.
Thanks for tuning in to this market update for Santa Cruz County.
If you would like additional information or a market evaluation for a specific property or if you’d like to get started searching for your dream home in Santa Cruz, call me 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.
