Santa Cruz Real Estate Market Update: May 2022
Interest rates are rising like crazy. We all knew it was coming, but what does it mean for the real estate market and your ability to buy or sell a home right here in Santa Cruz? Hi, I’m Shemeika Fox, your Santa Cruz Real Estate Expert and I have sold homes in all kinds of markets over the 18 years in the industry and I can help you navigate this one, as well.
Rates are expected to keep rising as we continue through the year. We started 2022 with mortgage rates at about 3.11% for a 30-year fixed loan according to Freddie Mac. As the year has gone on, the most recent data from Freddie Mac shows that rates have risen to 4.76%. Freddie Mac actually addresses this rise in rates by stating, “Mortgage rates are likely to continue to move higher throughout the balance of 2022. Although the pace of rate increases is likely to moderate much of the increase in rates in early ’22 is in anticipation of what will happen after this year, especially with Federal Reserve interest rate policy.” All the experts have been projecting this. We knew this was coming, but we are hopeful that the upward climb of interest rates will be slowing down as the year goes on.
This month, we will be taking a look at past markets that reflect what we are seeing today and see what experts are saying about what that means for all of us. Let’s turn to the experts to find out what we may be seeing in the market.
Let’s take a look at the past so we can have a better idea of what our future will look like. If we look back at data from October, 1993, provided by Freddie Mac, we see that there was a comparable spike in mortgage rates. At that time, we saw no negative impacts on the home prices and they still appreciated by 8%, but there was a decrease of 11% in home sales that very same year. Many people were likely priced out of buying a home due to market conditions. We are looking at a very different environment, though, because we are not expected to see the rate increase that we saw from October, 1993 to December, 1994, where it went from 2.38% to 9.2%. Overall, we see about a 2% impact on home sales, whether positive or negative. If we take out the outliers of ’05 and ’06, which led up to the housing crisis, we see that overall rising impacts don’t have a large impact on home sales. That’s what the experts are saying. More of what we are still seeing, however, is that inventory is still so low and home prices are expected to continue to drive.
These factors play into the Santa Cruz real estate market and how we may be analyzing it in the coming months. The National Association of Realtors says, “While higher short term interest rates will push up mortgage rates, I expect some of this impact to be mitigated eventually through lower inflation. Thus, I expect the 30-year fixed mortgage rate to continue to rise, although we aren’t likely to see big jumps that occurred over the past few weeks.”
Inflation is driving this rise in interest rates and as long as that continues, we will continue to see a similar rise in interest rates. Now, Freddie Mac says, “History suggests that when rates rise, there’s an initial bump in home prices as many move quickly to buy a home before rates increase further. But after that period, home prices slow.” Freddy Mac analysis shows that a 1% increase in mortgage rates result in home price appreciation that is four percentage points lower. For instance, a 1% increase in mortgage rates would change home price growth from 11% to 7%.” This means that though homes will continue to appreciate, we won’t see the high speed increase like we have seen in the past.
So will the Santa Cruz real estate market slow down? That’s the million dollar question. Regarding the national real estate market, Altos Research says, “We keep watching for it, but there are absolutely no signs of market slowdown anywhere in the data. If anything, we’re seeing the market continue to heat up.”
According to the National Association of Realtors, most states are seeing a strong buyer’s market. Even with the recent interest rate hike, the buyers are not slowing down. On the flip side, we have slow seller traffic. In some places we see just about nothing. This keeps driving up sales prices. But we did see an increase in active listings across the country for the first time in six months, so there is a little light out there for the buyer, though there is still more competition than most experts had assumed. Lance Lambert from Fortune said, “Now, more industry insiders are throwing out their previous forecasts and replacing them with more bullish short-term outlooks. Indeed, some experts say the 2022 spring housing market might go down as one of the most competitive on record.” That’s what the spring Santa Cruz real estate market has had in store for us and where nationwide experts say we are going.
Another thing to consider in the Santa Cruz real estate market is inflation. With inflation still rising and heavily affecting the economy, home ownership can be a hedge against the effects of inflation. As you can see here, most decades home price appreciation outperforms inflation. According to HPES, based on the increasing home equity, if you were to have purchased a $360,000 home in January of 2022, you would see $96,342 in equity after just five years. Appreciation in home value outpaces the cost of rising inflation and we don’t want to miss out on that equity.
Now let’s take a look at the local Santa Cruz real estate market. The median sales price for single family homes in Santa Cruz is up to $1.6 million. The median sales price for condos and town homes is up to $945,000. New listings for single family homes is up to 202, which is much better than we saw in January at 59 homes. New listings for condos and townhouses is up to 38, still low, but more listings than we saw in January of 2022, which was at 11. Sales price to list price for single family homes and condos townhouse, both are at 110%.
Thanks for tuning in.
If you have any questions on how the current Santa Cruz real estate market could affect you and your real estate dreams and goals, please 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.
