Quick Take:
The Santa Cruz County housing market looks similar to what it did last month, as inventory and sales remain high during the summer months. However, the war in Iran has heated up yet again, bringing more uncertainty into the economy and, by association, mortgage rates.
The Santa Cruz County housing market is in the midst of its usual summer surge, with inventory and home sales remaining elevated following an initial leap in June. However, geopolitical instability, particularly the U.S.’s war in Iran, has heated up once again, injecting some uncertainty into the marketplace and mortgage rates going forward.
Monterey Bay Mortgage advisor Scott Goodrich said that 10-year notes are the highest they have been in some time, and mortgage rates are often tied to 10-year Treasury yields.
“That’s a driving force as far as mortgage rates moving higher,” he said. “Investors, both individually and institutionally, that are buying these investments get nervous and that just drives the price of those yields higher. So when those yields are going up, that’s a sign of problems in most cases.”
Goodrich said that it’s a unique time for the market given the international turmoil.
“Normally, it’s just economic news like inflation reports and employment reports that are the driving forces for mortgage and interest rates,” he said. “Those are still important and valid, but I would say that the geopolitical scene has risen to the top now.”
Even so, the local housing market stayed busy in June. The number of available homes was largely the same as in May, dropping slightly to 442 from 450, according to the latest data from the Santa Cruz County Association of Realtors. Properties sold slightly slower in June than in May, averaging 40 days on the market compared to 35 in May. Properties averaged 40 days on the market in April, as well.
In June, 155 sales closed, higher than the 133 that closed in May. However, the countywide median sale price shot up by more than 15%, jumping from $1,130,000 to $1,307,272. That’s largely due to one $10.5 million sale of a 10,720 square-foot property in La Selva Beach.
Sereno Group Realtor Jennifer Watson said that, while there are fewer international buyers due to the ongoing geopolitical strife, those that are still in the market likely will not be put off by any shift in mortgage rates.
“Buyers keep in touch with their lenders on their loan and what they can afford,” she said. “They’re tracking it that way, but there probably won’t be such a huge change that will make a significant difference.”
Watson also said that inventory may continue to tick up, as buyers take their time with more options to choose from and sellers put their homes on the market during the busy season.
“People aren’t rushing into decisions like they were a few years ago, and we’re seeing more contingencies which means they will sell their house before they buy,” she said. “It’s a little bit of everything that makes inventory stack up.”
Aside from some possible changes to mortgage rates in the not-too-distant future, Watson said that many of the recent buyer trends have been business as usual so far this summer. Prospective buyers are still most interested in single-level homes and properties that need few to no fixes, given the priciness of construction and materials.
Even properties with the potential for accessory dwelling unit, or ADU, construction are still hot commodities, said Watson. Despite the fact that building permits for ADUs appear to have fallen by half from 2024 to 2025, Watson doesn’t think that the desire for properties with at least the possibility to build a second unit is going away.
But how the mortgage rates behave in the near future is the biggest question for Goodrich, as they greatly affect buyer psychology: “If they continue to trend up, and we start approaching that 7% range, that’s a number no one really wants to see.”
