Quick Take
Sales slowed significantly in November as interest rates remained high and the holiday season brought its predictable cold market. Although Santa Cruz County real estate agents expected that slowdown, they say the past year has been an interesting one in the local housing market. Buyers had to come to terms with high rates, and a cooler market put more power into buyers’ hands.
Santa Cruz County’s housing market slowed noticeably in November after a brief spike in market activity during October as higher interest rates pinched buyers.
Countywide, there were 40% fewer homes sold in November compared to the previous month – 69 versus 112 in October, according to data from the Santa Cruz County Association of Realtors. Home sales were also 20% below where the market was this time last year, when the county saw 97 home sales.
Real estate agents say the substantial dip in home sales is not unusual for this time of year. However, they agree that it was a peculiar year for real estate, as high interest rates spooked buyers, leading to fewer home sales across the board.
“I remember thinking, ‘Oof, if [interest rates] even get to 8%, the market’s going to slow way down,’ and it did,” said Coldwell Banker agent Jessica Wallace. “We almost had half of the number of sales we did in 2021.”
Current mortgage rates sit around 7.5%, which is just barely below the 20-year high in October. Santa Cruz County Association of Realtors president Jennifer Watson said that figure is not completely out of line with historical trends, but forced both buyers and sellers to adjust after an extended period of low rates.
“During the last 30 years, the average is between 5% and 10%, so we’re not anywhere out of the norm anymore,” she said.
The November market wasn’t down for the whole region, though. Sales were up in the always-busy Aptos market. But they were flat in Santa Cruz and down significantly in mountain markets like Felton and Ben Lomond.
Watson said that although the Santa Cruz Mountains have been booming in recent years, that area is no stranger to a noticeable winter slowdown.
“The market slows down mostly because people don’t want to move at this time, but people in the mountains aren’t necessarily going to want to buy and sell when it’s possibly really rainy,” she said. “That’s where the seasonality comes in.”
Santa Cruz County Association of Realtors data shows properties selling for an average of 99% of the asking price countywide, compared to an average of 102.4% in 2022. That’s thanks in part to higher interest rates keeping buyers in check. Watson recalls first-time buyers who closed on a property under $700,000 last month, and across six offers for the property, only “a couple” went over the asking price.
Countywide, the median sales price rose almost 33% compared to this time last year — to $1.292 million from $972,500. But that was due to a handful of expensive properties that changed hands. In fact, a four-bedroom, three-bath beach home at 531 Beach Dr. in Aptos sold for a whopping $9.8 million to a Driscoll’s berry producer affiliate — the most expensive sale in the county this year.
However, agents say the cooling market offered some benefits to buyers. During the pandemic, buyers with a lot of cash could waive some of the requirements usually necessary to close on a mortgage, such as inspections, appraisals and title searches. But fewer buyers means fewer people able to waive those contingencies, opening the door for less affluent buyers, even in a high interest-rate climate.
“Headwinds of interest rates was the biggest thing causing a less impressive market than we expected,” said Marvin Christie, co-owner and president of Anderson Christie Real Estate. “But some buyers came back because of contingencies and inspections, they had more negotiating power and some say in the game.”
Local agents still say they think interest rates will come down next year, most likely during the summer. Some predict that the market could stay somewhat slow through the first quarter of 2024 — but a quick reversal in the summer is highly possible, leading to what Watson expects could be a flood of new listings toward the fall.
Christie said it might not even take a big drop in interest rates to jump-start the market early next year. “There are still people in the market that need to buy, so if rates keep trickling down or even stay the same, the first quarter could be really strong,” he said.
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