How much longer will the Santa Cruz real estate frenzy last?

While the Santa Cruz Boardwalk’s Giant Dipper was closed during the pandemic, Santa Cruz County residents and prospective buyers took a wild ride on the real estate market rollercoaster over the last 14 months. After starting with a steep fall-off in sales at the very beginning of the pandemic, the market soon became red hot, and tales of intensive bidding wars became the norm. But will there be a plunging drop in the real estate home sales or a jolting rise awaiting us?

Here, we examine two of real estate’s statistical leading indicators: inventory and pending sales. Both offer hints of the “right now” real estate market. Looking at them together will lead us to better insights concerning the near future.

For context, consider that we had already been in a seller’s market for a couple of years in Santa Cruz County, driven mostly by what was perceived at the time as really low inventory. During the years of 2018 and 2019, “months of inventory” remained below two months’ worth, except for January of 2019, which was 2.1 months (source: MLSlisting, INC. data) In May, 2020 inventory hit a high of 2.7 months. Then, properties for sale became as scarce as we have ever seen -- inventory numbers have been hovering just above or below just one month’s supply since June 2020. That’s a trend that continues to this day.

However, this “lack of inventory” isn’t caused simply by a lack of new listings. In fact, for the first five months of 2021, the rate of new listings coming on the market steadily increased, month after month. April saw a 25% increase in new listings over March, and May another 12% over April.

Even with added supply, the extraordinary demand for housing in Santa Cruz now leads to continued historically low inventory levels. Simply, the buyers snap up the growing inventory -- quickly.

“Pending sales” can give us further insight into where the market is likely going over the next month or two. These are houses that are under contract but have yet to close escrow. Much like the increase in inventory, there are month-over-month increases for pending sales. This increase in pending sales makes sense with the increase in inventory and continued high demand: More homes to sell equals more pending home sales.

The number of pending sales increasing month after month tells me that the market in Santa Cruz remains strongly in the seller’s favor, at least in the near future. This is contrary to elsewhere, as economists such as Realtor.com Chief Economist Danielle Hale have seen a drop-off in pending sales nationally, over the last couple of months.

Why is Santa Cruz continuing to be a strong seller’s market? It’s the continued strong demand for a home or second home in Santa Cruz. This has led more sellers to decide to take advantage of the market and sell now. This increase in supply is helping stabilize the market but hasn’t seemed to change the overall market dynamics yet. It is my belief that there will need to be some degree of waning buyer demand to finally end the current frenzy.

What will settle this market down? Consider four points:

• More sellers taking advantage of selling now;
• People returning to their pre-pandemic lives;
• Buyer fatigue;
• The coming tide of higher interest rates.

These factors will lead to a more settled market. What I see coming: A continuation of a frantic sellers’ market slowly trending towards a stable sellers’ market.

About the Author: John Hickey, Owner & Broker - Monterey Bay Properties / Thunderbird Real Estate

John Hickey

(Rebecca Stark Photography)

John believes in a “hands-on” approach as the Managing Broker of Monterey Bay Properties and Thunderbird Real Estate. He enjoys the challenges of the complexities of the real estate business as well as being involved in the synergistic environment produced by the great agents of Monterey Bay Properties Thunderbird. John served as the Santa Cruz County Association of Realtors President in 2013 and served on the board of directors of MLSlistings, Inc through 2016.

John Hickey was born and raised in Santa Cruz County, growing up in the wonderful communities of Corralitos and La Selva Beach.

About Monterey Bay Properties & Thunderbird Real Estate

In 2016, Thunderbird Real Estate joined forces with Monterey Bay Properties when it was purchased by the locally owned and operated brokerage. Combined Monterey Bay Properties and Thunderbird Real Estate is a highly regarded office with over fifty experienced agents. Ours is the perfect blend of high production with the special attention of a boutique brokerage. We pride ourselves on being comprehensive in our coverage of Santa Cruz County, with abundant numbers of listings from the North Coast’s Bonny Doon to the golden beaches of La Selva Beach and Pajaro Dunes.

But the mainstay of our company and the key to our success is our agents and staff. We are refreshingly innovative, specializing in unique and exciting coastal and rural properties, as well as raw land sales. With incredible client service and a culture of contributing back to our beloved community, we strongly believe we are the best real estate office in Santa Cruz County and you can feel that difference as soon as you walk into our door.