Economic uncertainty begins to seep into Santa Cruz County housing market

Although Santa Cruz County’s housing market has been stable to begin the year, growing economic uncertainty is finding its way into the minds of local buyers and sellers.

“Uncertainty is the name of the game right now,” said Monterey Bay Mortgage advisor Scott Goodrich.

President Donald Trump’s escalating tariff wars and major federal layoffs have sent shock waves through the national economy, driving stock markets into correction territory last week.

That anxiety is starting to be felt close to home. Sereno Group real estate agent Jennifer Watson said employment stability has become a crucial factor in buyers’ housing decisions. “First, we look at their jobs and economic stability. We ask questions, like if they work for the government and how they’re feeling about their position,” she said.

So far, Watson has heard from only one person, a county worker, who is uncertain of what will happen with their job: “If they can have all their ducks in a row, this might be the time to jump, because others might be a little frightened.”

Goodrich echoed these concerns, noting that those working for federal agencies and universities are experiencing less stability in their positions than they are used to and might have difficulty committing to buying a house.

“People are nervous in that respect, thinking, ‘Do we want to make a home purchase right now or should we wait and see how things pan out over time?'” he said.

The changing market dynamics are already affecting buyer behavior. Watson said she has noticed younger buyers, particularly millennials, being less selective about their home purchases, including opting for fixer-uppers over renovated properties more frequently due to economic constraints.

“Before, they really looked for things that were ready to go, and didn’t necessarily want to fix things up,” she said. “I feel like, right now for affordability, people are looking at homes differently and thinking they can live with it now and grow with it later.”

Goodrich added that he’s trying to educate his clients as much as possible about the impacts of the economic uncertainty on the housing market. “If people’s [investment] portfolios are dissipating a bit, they’re going to have to take a second look at some of their plans,” he said.

So far, the local market itself has sent mixed signals that are difficult to tie directly to recent  changes in the economy. 

There were 57 home sales in February — Trump’s first full month in office — compared to the 67 during the same month last year, a 15% drop. That contrasts with January’s housing market, which was up 15% from January 2024. The market’s traditional centers of activity — Santa Cruz, Aptos, Watsonville and Boulder Creek — continue to see the most transactions.

Countywide, the median sale price was down about 14 to 15% in January and February compared to the same period last year. The median sales price was a little over $1 million in February, down from $1.25 million in February 2024. 

Many homes in the area are still selling quickly with multiple offers, Goodrich said. He was recently at a few open houses where the homes were listed at close to $2 million and still sold quickly. But he said that some higher-priced properties are sitting for longer periods of time, pointing to a condo in Capitola that has sat on the market for a few months.

“That may not seem like a lot of time, historically speaking, but in this market that’s ages,” he said, adding that the sellers decided to drop the price $30,000 last week, but have not yet sold it. 

Monterey Bay Mortgage branch manager Forrest Cambell said local housing inventory — the number of homes currently on the market or coming up for sale — remains “pretty tight.” But signs of change are emerging. If inventory increases, buyers will have more choices, which will make them feel less pressured to buy something quickly, and it also means that sellers looking to make a quick sale will have to adjust.

“They’ll probably have to lower their price to sell the house to compete more, and we just haven’t seen that in a long time,” he said. Watson said she has already seen inventory rising slightly, which excites the buyers she is working with.

Goodrich said that it’s possible that a trend of sellers lowering their prices to make properties more attractive contributed to lower median sales prices in January and February, but it’s difficult to say for sure.

There are other signs of buyers becoming more price sensitive: The average home size by square footage was significantly lower in January and February than the same months in 2024. Meanwhile, the average number of days on market — a measure of how quickly homes are taking to sell — has not changed significantly in recent months, with the homes taking an average of 50 days to sell in February compared to 51 in February 2024.

Market professionals are closely watching for signs that economic anxiety might trigger broader changes in buyer and seller behavior. Cambell said it could take some time for people to drastically change their financial behavior, especially if they are making a concerted effort to avoid the news.

“They already know about inflation and that things cost too much. They’ve seen that for a while, but those who are interested in buying are still looking at buying,” he said.

However, real estate agents also see some opportunities for the economic uncertainties to create a bit of breathing room in the market for both buyers and sellers. Goodrich said that when there is economic uncertainty, people tend to move their money into the bond market, which is considered a “safe haven.” When bonds become more expensive — driving yields lower — that typically pushes mortgage rates down. Currently, mortgage rates remain in the 6.5 to 7% range.

But he added that as of now, the biggest factor influencing the local housing market is that supply is still not meeting demand. “I think that’s still the driving force that’s keeping prices relatively high,” he said.

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