- Dax NollenbergerDax’s Data: SC Still a Bargain in the Silicon Valley Orbit
Historically, Santa Cruz County trails both San Mateo and Santa Clara County in nearly every major real estate metric. Silicon Valley drives local real estate. San Mateo and Santa Clara County have been in a league of their own when it comes to appreciation and sale price. The “over the hill” market, driven by high-paying jobs, trickled into our quiet little beach community but didn’t make such an impact that more “affordable housing” became the resounding dinner topic when breaking bread with friends and family.
That is, until March 2020, when COVID-19 hit. The impact of this pandemic on our real estate market could not have been predicted. As we sheltered in place, companies were forced to take divisive action to keep operations afloat as the traditional office setting was no longer an option. In came the work-from-home norms. Over the long run, expectations of floundering work production and decreased morale were vastly overstated. In fact, for many, production, work-life balance, and morale increased.
Through 2+ years of the telecommuting/work-from-home experiment, it’s safe to say the experiment has been a success. Tech companies have been at the forefront of the permanent adoption of some form of out-of-office or hybrid work.
The impact of the norm change on real estate was significant. Suddenly high-wage employees with increased net-worth in Silicon Valley had an opportunity to live and work where they please. For many, that meant flocking to the coast.
This Dax’s Data compares the historic real estate market trends for Santa Cruz County, San Mateo County, and Santa Clara County. I look at the impact of COVID-19 on Santa Cruz County real estate and hypothesize just how high Santa Cruz County could go.
In order to understand the recent trends of continuous overbids and ever-increasing prices, we must understand the fundamentals of our market. From the supply side, we have a serious shortage of available homes. More on why another day, let’s focus on the factors contributing to buyer demand. As mentioned above, a significant factor is the new work-from-home norms. The second is the coming of age of the millennial and the increasing demand for first-time homes (millennials make up 43% of all buyers nationally). The third is the current local buyer pool, a typical buyer now is an out-of-county buyer who is looking to make Santa Cruz home or make Santa Cruz a second home.
This is where comparing counties becomes so valuable. Analyzing the data since 2012, Santa
Cruz County’s median home price has increased by 11.1% per year, on average. Similarly, San Mateo County and Santa Clara County’s median home price has increased by 11.98% and 11.71% per year, respectively. While the appreciation has been similar, both San Mateo and Santa Clara County’s higher price points mean that the cost of a home has increased exponentially.
This is where buyer psychology comes into play. Many buyers aren’t comparing current prices to historical prices in Santa Cruz County, they are comparing prices to the market they are exiting. For the majority of the buyer pool, Santa Cruz County is, and continues to be, significantly more affordable.
The second point to analyze is how COVID-19 affected Santa Cruz County real estate as compared to the other counties. The trend of outpacing neighbors in appreciation for Santa Cruz County actually started in 2018. It accelerated, though, once the pandemic hit in early 2020. Since 2020, the median sale price is up 44.4% in the county! For comparison, San Mateo County is up 30.2% and Santa Clara County is up 37.2%.
So, is this an outlier or a new trend? Much of the real estate market surrounding Silicon Valley is somewhat dependent on the continued health and success of the tech industry. Heck, much of the entire US economy is dependent on the health of the tech industry. If we see a significant change in the success and stability of tech companies in Silicon Valley then that will certainly affect the potential of a continued rise in real estate prices, including here on the coast.
If, however, a major shift toward instability doesn’t occur, the comparable affordability in Santa Cruz County and new work-from-home norms will continue to put upward pressure on pricing. Pricing that will likely outpace its neighboring counties.
How high could prices go? Only time will tell but we can look to our neighbors for clues and the clues are telling us we could have a ways to go.
As interest rates and uncertainty on future market conditions rise, remember real estate is an investment favored by time. History tells us that over a long enough time horizon, you will win.
Thanks for reading. Reach out for all of your real estate needs. 831-227-5847.
