Quick Take:

As the COVID-19 pandemic continues to wreak unprecedented impacts on the housing market, there are several indications as to what the new year will bring for prospective buyers & sellers. Hear from Liz Kroft of Sol Property Advisors as she runs down what to expect from the Santa Cruz County real estate market in 2022.

What These 6 Real Estate Trends Tell Us About The 2022 Santa Cruz Real Estate Market

COVID-19 disrupted the homebuying process in ways nobody expected. Historically-low mortgage interest rates combined with an inventory shortage to create a red hot market: Homes sold within hours, often mind-bogglingly over the asking price. As we enter the third year of the pandemic, everyone is asking us whether the economy is getting back to some sense of normalcy.

Nobody has a crystal ball for exactly what 2022 has in store for the Santa Cruz County housing market. But at Sol Property Advisors, we predict that buyers and sellers can expect to see similar trends: high prices, scarce inventory, and a fast-moving market. In 2021, single-family homes in the county sold in an average of 24 days for an average of 4% above the asking price. Although 2022 will still be a strong seller’s market, it isn’t likely to be quite as crazy as it was in 2021 — but that can always change as we learned in the spring of 2020.

With that in mind, here’s what to expect from the Santa Cruz County real estate market in 2022.

Low inventory will persist

Before the pandemic, there was low housing stock in Santa Cruz County and across the country, and over the last two years, COVID-19 supply chain disruptions and a labor shortage made things worse. The number of single-family homes listed for sale in Santa Cruz County in December 2021 hit the lowest point in two years, with only 72 single-family homes coming to the market on the MLS. During the first week of January, we had 0.68 months of inventory.

That wasn’t because of a lack of homes listed for sale. In fact, the total number of homes listed for sale in 2021 was the highest the market had seen since 2015. That means the exceptional level of buyer demand has been creating a low supply. Inventory will likely rise again in 2022, but the housing shortage will still be a defining characteristic of the market.

Annual single-family inventory totals in Santa Cruz County
Annual single-family inventory totals in Santa Cruz County Credit: Sol Property Advisors

Interest rates will continue to increase

The Federal Reserve is expected to raise interest rates a few times this year, which means mortgage rates are expected to rise. The initial consensus among industry experts was that the 30-year-fixed mortgage rate would reach 3.625-3.75% by the end of 2022. That may need to be recalibrated, given the rise in rates we have already begun to see.

Unfortunately as rates increase, purchasing power decreases. As a basic rule of thumb, for every 0.5% increase in mortgage rates, buyers lose roughly 4-5% in purchasing power.

“This rise in rates is not necessarily terrible news for all buyers. When interest rates rise, fewer speculative buyers enter the market because there is less money to be made. That could lead to less competition, which will help the average buyer.” — Liz Kroft, Founder of Sol Property Advisors

2021 tracking of mortgage rates
2021 tracking of mortgage rates Credit: Sol Property Advisors

Prices won’t decrease

Economic trends, including limited supply, high demand, and historically low mortgage rates, will continue to give sellers the advantage. Buyers will continue to participate in bidding wars, particularly during the spring and summer, which is usually peak season. Although, with limited inventory and rising rates, the peak in buyer activity may be starting earlier in 2022.

What some housing analysts believe, however, is that home-price growth will slow significantly in 2022. Numerous forecasts suggest that prices nationwide will rise by around 5% in 2022, compared to the double-digit gains of 2021. In December, the Santa Cruz County median sales price for a single-family home was $1,212,952 — an 11% increase from December of 2020.

Median price of existing detached homes
Median price of existing detached homes Credit: Sol Property Advisors

Not everyone shares this view. Other analysts expect home prices to keep rising by double digits — at least for the first part of the year.

So what are four factors boosting values?

  1. Low mortgage rates
  2. Loosened mortgage standards
  3. An ongoing inventory shortage
  4. The work-from-home trend

Affordability has been a real challenge these last two years, with low mortgage rates and soaring buyer demand providing some balance. But with rates rising, inflation fears have surfaced. They’re not unfounded, as inflation was at 7% in December 2021, the highest it has been since 1982. “It’s worth noting that these loosened mortgage standards are nothing like what led up to the housing crash in 2008,” explains Kroft.

Young homebuyers will be at a disadvantage

Millennials, many of whom are first-time homebuyers, will remain at a disadvantage. Boomers are living longer and staying in their homes longer, and homes are much more expensive now than when Boomers and Gen-Xers were buying their first homes. As a result, more first-time homebuyers are likely to seek financial support from family and friends to make a down payment.

Housing affordability in Santa Cruz County has been an issue for buyers, particularly young ones, for some time. But the issue has only been exacerbated since the onset of the pandemic and will continue.

Homebuyers should be prepared

In 2022, it will be important to keep a close eye on the market and work with a highly experienced Realtor® who can help you compete and knows where to find off-market opportunities with less competition. Our best advice for buyers is to be prepared. Connect with a lender now to get pre-approved for a loan. And, do your research ahead of time so you’re ready to go when you find the perfect home. While you will have to act fast, make sure your interests are protected. And don’t overpay. Prices will be high, but that doesn’t mean you should purchase something too far outside your budget.

Sellers still have an unbelievable advantage

With mortgage rates climbing, serious buyers are more motivated than ever to find a home. Housing demand will remain strong as buyers seek to secure a home before the end of the year and into 2023, when mortgage rates increase. With buyers eager to purchase the limited homes available, sellers who list their homes this year will have a tremendous advantage — also known as leverage — when negotiating with buyers. That’s because, in today’s market, buyers want three things:

  1. To be the winning offer on their dream home
  2. To purchase before rates rise further
  3. To purchase before home prices soar even higher

This leverage can help you negotiate your best terms. The world is truly your oyster as a seller in today’s market. You might already realize this leverage enables you to sell at a good price, but it also means you can negotiate the best terms to suit your needs.

When asked about price, Kroft says: “Remember that it is never a good idea to overprice your home. The best strategy is to base your home price on recent sales and let the market take it from there.” Since buyer demand is still so exceptional, there’s a good chance you’ll receive multiple offers. When you do, look closely at the terms of each offer to determine which one has the best terms for you. It’s important to note that a strong offer is determined by more than just the price.

Bottom line

Today’s buyers are motivated to purchase a home this year, and that’s great news if you’re thinking of selling. But buyers shouldn’t lose hope. Interest rates, while on the rise, are still low. There will be great opportunities this year if you are properly prepared and working with a top real estate advisor.

Whatever your real estate goals, let’s connect today to discuss the best strategy for you. It is never too early to start planning and preparing for the future.

Jessica M. Pasko has been writing professionally for almost two decades.She cut her teeth in journalism as a reporter for the Associated Press in her native Albany, NY, where she covered everything from...