Happy New Year from all of us at The Bacorn Group! We hope 2017 is a great year for you.

If you might enter, leave, or otherwise change your position in Santa Cruz County’s real estate market this year, you’ll want to be aware of expected trends.

The Housing Market Nationwide

The national housing market is calming down after several years of steep price increases and high activity. Recent years saw year-over-year rises in home prices, which returned prices almost to pre-recession levels. Low interest rates encouraged sales. Now, price increases remain steep in some regions and are slowing in others, suggesting the market is normalizing.

Denver, Boston, and other booming secondary markets with limited inventories continue to see home prices rise. Meanwhile, Bay Area price increases are slowing. In San Jose, for example, home appreciation rates dropped from 16 percent in July 2015 to just 5 percent this July. Contributing factors may be flat wages and low inventory, which force some people to delay buying a home.

Yet increasing interest rates, rent, and home prices may compel others to buy in 2017. Historically low interest rates will likely rise just enough to remain friendly, but nudge hesitant buyers forward. (Click here to see.) In some areas, including California, rent is rising faster than home values, adding to buyers’ motivation.

Demographic Trends

Moderately priced home purchases by millennials are poised to surge in 2017, as this demographic enters the home buying life stage. And their path is being smoothed. President Elect Trump has proposed a student loan forgiveness program, which would remove a major obstacle to this group’s purchasing power. In addition, the Federal Housing Administration (FHA) offers a low down payment program.

Downsizing baby boomers will increase the demand for moderately priced homes. And generation Y’ers are also expected to enter the market in droves. They’ve positioned themselves to buy.

Builders aren’t meeting the increased demand, fearing a surplus like the one they faced in the recession. Low inventory levels, joined with tighter credit restrictions and rising prices, will continue to counter the market’s recovery.

The Housing Market in California

According to the California Association of Realtors’ (CAR) 2017 forecast, inventory is especially challenging in our beautiful state. The low supply will dampen the housing market. The market is considered “balanced” when it offers enough homes to last six months, selling at their current rate. This fall, California’s inventory was at 3.4 months.

Baby boomers throughout California are opting to remain in their home through retirement. Forty-four percent of this demographic doesn’t consider their equity sufficient to retire at the income level they’d like. They don’t like the higher tax they’d face on a new home purchase (because of Proposition 13). Plus, many of them want to leave their property to their children.

Also impacting the California market is affordability. In 2011, more than half of Californians could afford the median home price. In 2017, only 29 percent will be able to manage it. Although the median home price is expected to rise by only 4.3 percent (the smallest increase in six years), that increase still outstrips labor wage increases.

The Housing Market in Santa Cruz County

Perhaps nowhere is low inventory a bigger deal than in Santa Cruz County. Our county’s 2016 inventory of single family homes represents a ten year low. Santa Cruz County had a mere two month supply in November. (See some current listings here.)

All things considered, 2017 is a great time to purchase a home in Santa Cruz County. If you can buy, now’s the time to act. If you’re wondering if you can buy, you may be pleasantly surprised. Interest rates remain low. Price increases are slowing—and those increases are mostly limited to the high-end market. Rent continues to rise.

It’s also a promising year for sellers, as inventories are limited and the millennial surge is imminent. Whichever side of the equation you’re on, we’d love to answer your questions and help you meet your goals. Please call us at (831)818-4321, or contact us here.