Santa Cruz County housing market could see a fall jump with lower mortgage rates

Santa Cruz County’s housing market stayed busy for real estate agents in July, as is usual for the warm summer months.

Countywide, there were more home sales in July than in June — 131 to 112, respectively, according to data from the Santa Cruz County Association of Realtors. That is also slightly higher than the activity from July 2023, when the county saw 125 home sales. As usual, Aptos, Santa Cruz and Watsonville saw the highest number of home sales. 

The countywide median sales price in July was higher than last year — $1,362,500 compared to $1,125,000 in July 2023, about a 21% increase. However, the homes and lots sold this July were much larger on average than those sold in July 2023. Properties stayed on the market for longer in July than in June, an average of 42 days compared to 32. That is also slightly longer than in July 2023, when properties stayed on the market for an average of 37 days.

Although the summer market has been predictably busy, Santa Cruz County Association of Realtors agent Jennifer Watson points to “market weirdness” that has pervaded the home-buying landscape this summer. She said colleagues are sharing stories of “anomalies” in their day-to-day business.

“We’ve had things that are selling with multiple offers in just a couple weeks and others that are great properties in great areas, but they’re just sitting there,” she said. “It’s very interesting to see it happen all at once.”

Watson said it could be tied to new real estate industry changes, stemming from a National Association of Realtors settlement earlier this year, that require agents to have a written agreement or contract from buyers before an agent can show them a home, and new rules surrounding the way agents are paid commission. She thinks the coming weeks could hold a return to normalcy.

Watson added that mortgage rates saw a fairly significant drop in early August, from the low-to-mid 7% range to the mid-6% range, which was enough to get more people into the market: “I’ve seen people I’ve been talking to for years coming out of the woodwork saying that they’re ready. I suspect [in August] we’re going to see a big jump in sales.”

Monterey Bay Mortgage advisor Scott Goodrich agreed that the drop in rates will bring more prospective buyers into the market, and probably already has. He added that recent data showed inflation coming down “slowly, but surely,” which is likely to benefit the market as well.

“The Federal Reserve is now at a point where it feels more comfortable cutting rates, so that’s kind of baked into the marketplace in September,” he said. “It’s just a matter of whether it’s going to be a quarter-percent or a half-percent.”

Goodrich also said that while the lower rates are good for homebuyers, they are not yet at a level where people with mortgages are looking into refinancing: “We’d probably need to see into the 5% to 5.5% range before it spurs more of a refinance marketplace.”

Goodrich said that any mortgage rate dip is helpful — particularly after years of high rates following pandemic-era rates that fell as low as 2% to 3%.

“It gives the real estate community a little positive boost; they’re able to talk to their clients and share some good news in that respect,” he said.

If and when that jump happens, Watson said properties with the potential for addition of a second unit will be going quickly. Watson said that any home that opens the door for the development of an accessory dwelling unit (ADU) or converted unit is in high demand these days and has been for a while.

“You’re seeing garage conversions, little backyard cottages that are pretty easy to build,” she said. “It doesn’t matter what kind of property it is, if it has a second unit or something like it, it’s popular.”

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