Money is cheap, but homes are not.
Today mortgage credit availability is some of the best we have seen for the spring housing market. The rate for 30-year fixed rate loans has dropped close to four percent and wages are up. What oh what could this mean for the spring and summer selling season in Santa Cruz County? Unless families suddenly don’t want to purchase homes anymore, it mean’s this year’s market should look good.
We are emerging from housing data reflecting a somewhat stagnant first quarter, but now mortgage rates are some of the lowest we have seen in the last twelve months. At the end of March, the U.S. average rate for a 30-year fixed mortgage had the largest one-week drop in more than ten years. According to Freddie Mac, rates dropped to 4.06%. Since the end of Q1 rates bounced around in a narrow band, and this week averaged around 4.07% compared to 4.61% a year ago and a peak of 4.94% in November of last year.
The recent dip in rates has translated into a roughly six percent increase in a homebuyer’s purchase power while keeping monthly payments the same. What this means for example is that at these rates the monthly payment is the same for a $848,000 purchase price today compared to $800,000 when rates were higher.
Lower rates are great, but you can’t secure a mortgage without enough income and there have been positive indicators on that as well. Wage growth has picked up steam recently after years of stagnation. According to Federal Reserve Governor Lael Brainard, “employment rates of adults in their prime working years have been rising steadily during the expansion and recently reached their pre-recession peak.”
So what does all of this mean for the housing market in Santa Cruz County now?
The 2019 home-buying season is expected to be characterized by rising home prices, a moderate pace of home sales and an influx of inventory. More homes on the market and lower mortgage rates will help offset some difficulties of price gains, but affordability will remain the primary challenge for shoppers.
Spring inventory was flat in Q1 as listings lingered on the market. Demand was perhaps stunted by high prices and interest rates. In Santa Cruz County the inventory of homes for sale was flat in the first quarter, compared with a year earlier. This was the first time since 2016 that there wasn’t a decline according to data from the MLS Listings. This is true of inventory across much of the U.S. as well.
The first quarter data may be representative of the tail-end of a housing slump caused by November’s eight-year high in mortgage rates.
In April 243 single family homes were listed for sale, this is up from 217 in March and 231 in April of last year. Pending single family home sales (homes that entered into contract with a buyer) in the county also increased by 14.5% as the cheaper financing options brought more buyers into the market.
Yet as the number of homes for sale is increasing, some argue that the number of buyers is falling off.
The spring home-buying season is an improvement over last year from an inventory perspective, but would-be buyers are still confronted with challenges. This year shoppers are wrestling with their budgets, rather than competition from a swarm of other buyers. Instead of stressing over which strategies will help them get ahead, potential buyers will have to figure out what they are willing to give up in order to stay within their budgets.
Many buyers around Santa Cruz County seem encouraged by an expected surge of supply this spring yet are taking a wait-and-see approach rather than hustling to get an offer accepted. Lower interest rates, though, are starting to entice some of those sitting on the fence.
Buyers have been hearing that the market has slowed, so now they’re trying to get more of their “wants”, not just their “needs”. An increasing number of families are waiting until they find a home that can check more boxes. In general they are being more judicious as they think through their purchase. Meanwhile, sellers have not fully recognized that the market has shifted.
Survey data by Trulia has revealed that only 17% of this year’s shoppers plan to offer more than asking price, compared to 26% last year. There seems to be some truth in the survey results. In April, 32% of the single family homes that sold in Santa Cruz County reduced their asking price - this is drastically up from 19% in April 2018. In addition on average homes sold for 96.55% of their asking price (or 3.45% below) compared to 100.92% a year ago.
Another indicator of demand is Days On Market - or how long a home is listed for sale before entering into contract with a buyer. In April the average single family home sat on the market for 51 days. In 2018 that number was nearly half that at 26 days.
Despite tempered demand, the lower rates are helping support continued price growth. In April, the median sales price for a single family home reached an all-time high of $977,750. This is up from $917,000 in March and $899,000 a year ago.
Home sales data has been somewhat volatile over the past several months. Buyers this year don’t have the same sense of urgency that was palpable a year ago. They are not as worried about losing out on homes and are more than willing to wait for a seller to drop their price. With front-row seats to a rapidly changing market, 2019’s buyer is savvy and is adapting quickly to the new normal.
Combined with the average 30-year fixed rate declining by more than half a point over the last three months, housing is now the most affordable it’s been since early in the 2018 home-buying season despite what the median price may have us believe.
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