After 11 years of rising Santa Cruz home prices, ‘we’re in a dip at the moment’

a for sale sign outside a home
(Andy Dean Photography / stock.adobe.com)

Home prices in Santa Cruz County have flattened and even begun to drop in recent months, as they have across the country. Will it last? Experienced realtors say it’s too early to say.

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After 11 years of a rising market, home prices in Santa Cruz County have leveled off in recent months, and have even begun dropping across the board.

Multiple listing service (MLS) data shows a two-month decline in home prices in the county. March saw median prices of over $1.6 million for single-family homes. That fell to just over $1.4 million in April, and to about $1.25 million in May.

Local realtors have also noticed many properties remaining on the market for much longer than has been typical.

For years now, the prospect of owning a house in Santa Cruz has been essentially a daydream for many. Homes, condos and even rentals have been incredibly expensive, earning Santa Cruz the dubious title of fourth-least-affordable real estate market in the world.

Though current conditions can’t necessarily be described as “cheap,” recent numbers — and anecdotal evidence from local real estate agents — point to observations not seen in over a decade.

Celeste Perie, a local broker and owner of Schooner Realty, describes this moment in local terms, noting that prices are lower on average, but within the uniqueness of this market.

While prices are dropping in many areas of the country, Santa Cruz is a special case.

She sees tangible differences in how potential buyers are approaching offers.

“Six months ago, we had 10 really good offers on a listing and now we might have one or two,” she said. “There may be one unicorn that wants to pay over the asking price, but that still indicates that we’re going back to a buyers’ market.

“We kind of have a recession-proof market — it dips, and then it comes to a high. I think we’re in a dip at the moment,” she said. “We have a unique place to live with the ocean and the funkiness, and people are going to continue to want to be here and I see that fueling our market.”

“There’s absolutely a shift happening in the market, and that’s especially compared to the market’s crescendo that we saw in February and March where the markets reached the peak of their peak,” said Sereno Group Regional Vice President Tom Brezsny. “If you might have gotten 10 offers on a property then, it may be only five now; and if you might have gotten five offers then, you might get only two or three now.”

Even in changing real estate markets, one thing is always true: location, location, location.

Brezsny says plenty of properties are on the market for noticeably longer periods of time, but not all of them.

“On a daily basis, the stuff that’s in great locations, presented well and in good condition continues to sell with multiple offers,” he said. “Things in more marginal locations, like on a busy street or in an inconvenient location, sit for longer and sell for less.”

Even if the price dips are recent and difficult to forecast going forward, all appear to point to a change in demand, which is undoubtedly also related to fast-rising interest rates.

Marvin Christie, co-owner and president of Anderson Christie Real Estate, explains that change.

“The prices and frenzy we’ve seen over the last two years has been unreasonable, and that’s disappeared by every account,” he said. “There’s potentially a recession looming, a war, and dramatic increase to interest rates.”

Christie points to the sharp interest rate increase — from about 3% to nearly 6% in a matter of months — that has likely caused much hesitancy among buyers.

“To be able to borrow money for 30 years at 3% interest is, by all indications, ‘free money,’ since the inflation rate has almost always been higher than 3%,” he said. “That’s very low and people got comfortable with it.”

Christie — appropriately speaking from the site of a slow open house in Rio Del Mar — said he thinks things will pick back up given the historically high demand for housing in the area, even if properties are currently spending far more time on the market than usual.

“We’ve seen a real pause in the market and we always do at this time of year, but this is much slower,” he said. “I’m feeling as though the market is already picking back up; however, I don’t think that we’ll be back into that frenzy we had.”

Is a big drop imminent, like the one after the most recent big recession?

“We’ve had an up market for 11 straight years, and I think that a lot of people fear that the market will crash in any kind of recession,” Brezsny said, “but the Great Recession in 2008 was a very special set of circumstances that we’ll never see again in our lifetimes.”

Clearly, this is a big point of change.

“There are always fluctuations in the market, but I’ve never seen anything as fluctuating and high-priced as the COVID market,” said Perie. “Nothing that expensive and fast-moving, and maybe we are transitioning out of that.”

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