a for sale sign outside a Santa Cruz County home
(Kevin Painchaud / Lookout Santa Cruz)

Santa Cruz County realtors say housing market to strengthen as pandemic-era buyers rethink remote work, second homes

Santa Cruz County’s housing market had a slow summer, though home buyers still showed plenty of interest in more affordable South County and mountain communities. But with interest rates expected to dip by next year, some real estate agents say pandemic-era buyers might be starting to sell — and competition could heat up.

Santa Cruz County’s housing market capped off a slow summer in August, with home sales largely flat compared to July. But now that summer has ended, local real estate agents say they are preparing for a surge in market activity on expectations that interest rates might come down and out-of-town buyers who rushed into the local market during the pandemic could begin to sell.

The county saw 126 home sales in August, up just one from 125 in July. The market was significantly quieter than in August 2022, when the county saw 146 home sales. The countywide median sale price ticked up 5.3% last month to $1.185 million, compared to $1.125 million in July. That is in part a result of buyers purchasing larger homes on average, according to data from the Santa Cruz County Association of Realtors.

The city of Santa Cruz saw 32 single-family home sales in August, five fewer than the previous month. However, the average August home sale involved a larger property, pushing the median sale price up from $1.5 million to just over $1.53 million. That’s about 4.6% higher than the same time last year.

Aptos — which routinely comes in as the second-busiest market in the county each month next to Santa Cruz — saw 25 home sales in August, up just one from 24 in July. Buyers snapped up smaller homes sold on average than they did this time last year, which led to a 2.6% drop in median price compared to August 2022.

Sales rose in Boulder Creek and Watsonville — two jurisdictions that were among the county’s busiest markets earlier this summer. While Watsonville saw only three more sales, going from 14 in July to 17 in August, Boulder Creek saw seven more sales, jumping from nine in July to 16 in August. The sustained popularity of those markets in recent months can be attributed to generally more affordable properties than in the rest of the county.

“That’s really where our affordable properties are,” said Santa Cruz County Association of Realtors President Jennifer Watson. “So if you look at anyone trying to buy a house, most of them can afford to buy in those areas.”

The busy month in the mountains comes despite more home insurance companies pulling out of California. State lawmakers tried and failed last week to strike a deal with insurance companies before the close of the legislative session.

Given the heightened level of fire danger in the mountain regions, insurance has become more expensive for such properties, which has begun to strain the affordability.

“We’re seeing [insurance] quotes for mountain properties that are around $10,000 a year,” said Anderson Christie Real Estate co-owner Marvin Christie. “It’s one of the more affordable markets in the county, but we’re seeing some bumps there, too.”

Buyers in areas with the most severe fire risk will likely be required to take the California FAIR Plan, an “insurer of last resort” that provides fire insurance to homeowners who can’t find coverage through the traditional market because of fire risk. The plan has faced criticism for its high cost and limitations on coverage.

“Boulder Creek is an example of an area with mostly severe fire danger, so you’ll be getting the California FAIR Plan in addition to your regular coverage,” said Watson. “That is definitely a factor, especially for first-time buyers.”

That didn’t deter buyers, however. The median sales price in Boulder Creek rose 8.3% in August compared to July.

Across the county, inventory of available homes for sale has been low for years for several reasons. The market is perpetually filled with buyers, and building houses is an often slow, expensive process. “We have not been building to keep up with demand for the last 30 years,” said Christie, adding that the local population has grown significantly during that time frame, which means far more demand than supply.

Watson agrees, but said a minor shift might be in the not-too distant future. She points to a phenomenon she calls “pandemic retraction,” where people who rushed into the Santa Cruz market during a time of extremely low interest rates are either heading back to in-person work, or selling a Santa Cruz property that they had planned to use as a second home, but ended up underusing it.

“We were expecting it a little bit, but that might continue over the next couple of months,” said Watson. “There was just such a tremendous influx of people from everywhere that, at a certain point, some people were going to realize their situation isn’t quite what they expected.”

So does that mean the inventory might finally begin rising, and pave the way for a more buyer-friendly market? Theoretically, said Watson, but not as much as some might hope.

“Buyers will have more choices. Rather than making the one choice they have work, they can look at two or three and decide where to place their offer,” she said. “But there’s still going to be competition, because I don’t foresee a mass exodus by any means. It won’t solve our housing problems.”

That competition could increase beyond what is prompted by any “pandemic retraction,” as agents still expect interest rates to dip within the next six months. Those are currently sitting at roughly 7%, but could fall to around 5% next year.

“We expect it to be kind of a frantic market, all those buyers will come off the sidelines,” said Christie. “Because right now, there are already more buyers than sellers, and I think that will just make it a bigger gap.”

But Watson thinks it could affect both buyers and sellers.

“If sellers hear that there are more buyers, then they may be more inclined to put their property up for sale,” she said. “It sort of excites both sides.”

Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.