August 2017: Santa Cruz County Housing Market Update

Home prices are still en fuego in Santa Cruz County, but some signs point to a seasonal cooling and there is chatter amongst some industry experts about the beginnings of a market shift.

For the first time ever, the median price for existing Single Family Homes topped $800,000 for eight consecutive months. The August median price of $825,000 was down from the peak of $875,000 in May of this year and up slightly from $810,000 in July. 

Despite continued appreciation, seasonal cooling (and perhaps early stages of a market shift) were witnessed in a few ways last month:

  • More homes reducing their price before selling – In August 29% of homes sold reduced their price, compared to 25% in June and July.
  • Fewer buyers actively in the market – Many open houses are slower than they once were and the majority of homes are not receiving the number of offers they once were.
  • Homes spending more days on the market before entering into contract – The average days on market (number of days between when a home is listed for sale and enters into contract) increased from 34 to 36 in August.
  • A decrease in the sale to list price ratio (more homes are selling below list price) – Homes sold for an average of 99.23% of their asking price price ( 0.77% below) compared to 100.24% in July and 99.95% in August of 2016.


In Santa Cruz County home prices for Single Family Homes increased 11.53% from the previous peak in the third quarter of 2006 to the second quarter of 2017. Year to date (January through August) median prices have risen 5.8% from last year.

In one regard, the extreme rise in housing costs has emerged as a threat to the county’s future economy and its quality of life. This is becoming a state-wide phenomena as well, damaging the economy and environment as people are pushed into longer commutes.

Related: The Santa Cruz Restaurant Scene’s Labor Crisis

The crisis is a price of the area’s economic boom. Tax revenue is up, unemployment is down. But the churning economy has run up against 30 years of resistance to the kind of development that experts say is urgently needed.

The silver lining is that price appreciation is good news for homeowners. Frank Nothaft, CoreLogic’s Chief Economist, explains: “One million borrowers achieved positive equity over the last year, which means risk continues to steadily decline as a result of increasing home prices.”

Frank Martell, President and CEO of CoreLogic, believes that this is a great sign for the market in 2017 as well, as he had this to say: “Homeowner equity increased by $766 billion over the last year, the largest increase since Q2 2014. The rising cushion of home equity is one of the main drivers of improved mortgage performance. Since home equity is the largest source of homeowner wealth, the increase in home equity also supports consumer balance sheets, spending and the broader economy.”

Despite rising prices, buying a house is not as “unaffordable” as the median house price implies. It is important to remember that interest rates remain below 4.5% and that 20% down-payments are no longer mandatory.


Although homes continue to sell at a record pace, low inventory means that closed sales are two percent lower year to date compared to 2016.

Interested buyers are being held back by supply that remains stuck at a meager level and price growth that is straining their budgets. Demand, however, is as strong as it has been before the market crashed. Listings below the median price range continue to be gobbled up rapidly but severe shortages of homes for sale (especially in the affordable range) are keeping a large segment of would-be buyers on the sidelines.

As we enter the fall and winter months, 2017 is shaping up to be another year of below average sales to first-time buyers despite a healthy economy that continues to create jobs.


This is a topic many of the years’ market updates have touched on. Home buyers and agents are struggling with low inventory all over the country, not just in Santa Cruz County and the surrounding Bay Area.

There are many things to point our fingers at, but here are five common explanations:

  1. Investors
  2. Price appreciation
  3. Gaps between prices for trade-up and starter homes
  4. Older homeowners who move less often
  5. Less home building

Lack of homebuilding has had the biggest effect by far, followed to a lesser extent by investor activity.

Housing inventory shortages continue to plague the real estate market and the generation that is most to blame is Baby Boomers. This generation’s decision to either age in place or move to a retirement home could have a substantial impact on home inventory as well as the broader economy.

Boomers indeed hold the key to those homes the market desperately needs, but with a strong economy and rising home prices there’s really no reason for established homeowners to sell in the short term. Additionally, many homes already fit current family needs

Though downsizing may be on the minds of many Boomers, they face the same inventory shortages and price increases plaguing Millennials.

Older generations aging in place is nothing new to the housing market. What is new, however, is the sudden increase in population of 55 to 74 years which increased 30% in the past 30 years from 16% of the total population in 1985 to 21% in 2015.

Add to that the fact that Millennials outnumber Baby Boomers and are America’s largest generation. Now 20 – 36 years old and in the phase of life where homeownership is becoming a priority and we can begin to see the imbalance of supply and demand for housing in the country these generations are creating.


Americans and many Santa Cruz area residents believe that the housing market is overheating as home prices continue to rise and suspect that a housing price correction may (or perhaps must) be imminent.

Housing confidence continues on a positive trajectory due to high home prices and low inventory. Eighty percent of Americans still feel that homeownership is an important part of the American Dream. Despite this commitment to homeownership though many are less confident about buying a home now and don’t believe it will hold its current value.

Many buyers are expressing concern with the timing of the market and want to make sure they are not buying high, but they are keeping a watchful eye on interest rates.

Experts explain that living in a home for seven years or more could lower a homebuyers exposure to market fluctuations. Only 37% of millennials plan to live in their next home more than six years.

At state and local levels housing has become a priority that must be addressed by our leaders. But how and when? Discussions are creating a political environment where prospects for state housing intervention appear more likely than ever.

For the past several decades California and Santa Cruz County have had processes that set a number of housing units, including low-income units, that each city should build over the next several years based on projected growth Many cities are lagging on building allowing developers who propose projects in those places to bypass the various local design and environmental reviews that slow down construction because they can be appealed and litigated for years.

To those concerned about a price reduction or waiting to time the market I recommend a proactive approach. Have an exit plan, then anytime you find a home you love is a good time to buy.

Questions about the market or how to achieve your specific real estate goals?