Housing Inventory Continues Recovery In Santa Cruz County While Prices Stabilize

The spring housing market  in Santa Cruz County could shape up to provide home shoppers with a more plentiful supply of less expensive homes than last year, as the number of newly listed homes has significantly increased, median listing price growth has slowed, and the sale-to-list price ratio has dropped considerably since the height of the pandemic. However, overall inventory still remains less affordable and more scarce than previous pre-pandemic years and while interest rates dropped late October through early January they've begun to climb back up in February. 

Affordable Home Inventory Grew Compared to Last Year 

February marked the second consecutive month of inventory growth, with 10.6% more single-family homes listed for sale than in 2023. For the first two months of this year, the inventory of homes for sale was 24% higher than the same period in 2023 - which was the lowest level in over two decades.

Most listings in February were concentrated in Santa Cruz followed by Aptos and then Boulder Creek with Watsonville not far behind.

Home shoppers will have more choices than in recent years heading into the spring homebuying season, and in particular more choice of lower-priced homes compared to last year, but inventory is still not as plentiful as in years past. Many are surprised to learn that the median sales price across the county in 2023 was 5.6% below 2022. 

The San Lorenzo Valley as a whole has been largely driving the increase in affordable homes:

• Boulder Creek: $611,250
• Ben Lomond: $678,500
• Felton: $832,666

On the other end of the spectrum some of the highest sales prices were found in:

• Los Gatos Mountains: $1,636,833
• Scotts Valley: $1,623,766
• Aptos: $1,554,375

Buyer demand did appear to be picking up steam in February with pending and closed sales increasing month-over-month. Pending homes (those that went under contract) are an early indicator of the direction of sales. 

In recent months, home sales have been sensitive to mortgage rate fluctuations. Mortgage rates declined abruptly in November after peaking at 7.79% for a 30 year fixed rate according to Freddie Mac. They steadied around 6.6% in January and early February and unfortunately began to climb back up at the second half of February ending the month at 6.94% for the week of February 29th.

Consistently strong economic and labor market conditions and an uneven decline in inflation have pushed the Federal Reserve Board into a wait-and-see approach to determine the best timing for future rate cuts, a factor driving increased mortgage rates in late February. This, coupled with less positive February pending data, could mean slower seasonally adjusted sales heading into the next couple of months.

Homes Spent Less Time on the Market Than Last Year

The typical home spent 44 days on the market in February, which is four days shorter than the same time last year and around three weeks less than the average before the pandemic.

The fastest sales were seen in Los Gatos Mountains (27 days), Santa Cruz (34 days) and Scotts Valley (39 days). While the two slowest were Felton (90 days) and Ben Lomond (86 days). 

Growth in the Median Home Listing Price Slows to a Crawl

The Santa Cruz County median sales price began to increase seasonally to $1,200,000 in February compared to $1,160,000 in January - unchanged compared to February 2023. 

I mentioned previously that data in January showed a deceleration in growth and this held true into February. The share of listings that reduced their prices decreased month-over-month and year-over-year indicating that listing agents and sellers have perhaps caught on to this trend and are adapting their approach to pricing homes.

The median price for existing home sales could fall modestly this year due to the required share of household income to purchase a home reaching unsustainably high levels and if the current trend of price deceleration continues, we could see the median home price dip below 2023 levels in March especially if interest rates continue to climb. 

Unsettling Shifts In Insurability