Here is my 2020 real estate forecast for Santa Cruz County
including San Lorenzo Valley and Scotts Valley
The Washington Post published an article this week that surveyed over half a dozen real estate and financial economists: the National Association of Realtors, REALTOR.com, Redfin, Zillow, the National Association of Home Builders, the Mortgage Bankers’ Association, and BankRate.com.
30 year fixed mortgage rates are expected by most experts to stay below 4% this year. In a rare move, the Federal Reserve actually came out and said they did not intend to move interest rates this year. For perspective, early last year interest rates were projected to be increasing. Currently the 30 year fixed mortgage rate is averaging 3.7% - it was 4.5% this time last year. Looking back at 2000, rates were around 8%. Low rates are an incentive for buyers, making property more affordable…but they also allow people who otherwise might consider selling to instead refinance and take money out for home improvements (or other goals).
Inventory is expected to remain low, challenging buyers. People who in the past might have considered selling and moving up or down, are instead staying in their homes longer and improving them instead of moving. Another constraint is the new tax laws only allow a maximum of $10,000 tax deduction for state and local taxes - including property taxes - otherwise known as the SALT cap. Although the House voted to increase this to $20,000 at the end of 2019, it still needs to pass the Senate before it goes to the President.
In many markets across the country, new homes are being built, but in Santa Cruz County this is rare. The exception is Scotts Valley which has several new developments in process. New home building is up nationally, but during the 2010 decade new construction was at the lowest level in 60 years. That ten year low in building activity, combined with the millennial segment which, as they move in to their 30s, is transitioning from being renters to becoming first time homebuyers, puts the national housing shortage at around a million homes.
Prices, according to these half dozen real estate economists, are expected to range anywhere between less than 1%, to up between with 4% at the top end of predictions. Another housing forecast I follow – CoreLogic – predicts prices up 5% during 2020. Freddie Mac forecasts prices up 2.8% for the year. But these are broad based, national predictions.
Locally, Santa Cruz County home prices are heavily influenced by the real estate market and economic conditions in the Silicon Valley and greater Bay Area. The Silicon Valley continues to lead innovation and attracts some of the brightest minds in the world. The California Association of REALTORs’ economist, Leslie Appleton Young, states that Santa Cruz unemployment is about 4.6% while South Bay and San Francisco are under 2.5%. She notes about 850,000 new jobs have been added in the Bay Area between 2010 and 2018, but only 183,000 new home permits were issued, making the housing shortage here worse.
I expect the lower end of the market –entry level priced homes– to remain strong, while higher end properties may experience weaker prices. Entry level homes are likely to have more buyers making offers, and go into escrow within two weeks to a month, if priced close to value and in reasonable location and condition. I expect upscale properties to take longer - from several weeks to several months - before going into escrow with a buyer. Properties that are priced too high will linger on the market longer...
To read the whole article, click https://www.washingtonpost.com/business/2020/01/06/experts-predict-what-housing-market-will-bring/
California Association of REALTORs’ economist, Leslie Appleton Young’s latest presentation https://car.sharefile.com/share/view/se19bf2af49f4f659