Santa Cruz Real Estate  Digest,  Ed. 16
December, 2016 - In This Issue:
In This Month's Issue
In this month's Digest, you will find national and local news as well as informational pieces on topics that we have found to be increasingly important in the real estate industry. 

First, Christine would like to say thank you on behalf of everyone here at Schneider Estates, and provide her professional opinion on what is to come in our local real estate market in 2017

Nationally, we continue to follow Trump's policy proposals, and reflect on what these changes will mean for real estate. 

One consequence of the election is an increase in interest rates. They are higher and may continue to rise. With the FOMC meeting occurring over the next few days, we believe that the days of historically low rates are coming to an end. 
Here in California, housing affordability is on the minds of many, including our local and statewide governing bodies. We discuss some of the issues surrounding housing affordability, why this is important for the first time homebuyers, and what you can do about it.  

New cannabis laws have come into effect. What does this mean for real estate here in Santa Cruz? Read below to find out. 

Finally, in the spirit of giving, we've provided a FREE first time homebuyers guide. Happy Holidays, and please share this with anyone who you think it may benefit.

If you are looking for monthly real estate statistics for Santa Cruz, Santa Clara, and/or Monterey County, find them direclty below. 

Real Estate Market Statistics 
For Santa Cruz, Santa Clara, and  Monterey

The reports contain median home prices, real estate price statistics, valuable information about mortgage rates and much more.

Christine's Corner

The Santa Cruz Housing Market: Prediction for 2017

It's amazing that we are at the end of another year. Here at Schneider Estates we have much to be grateful for. Most of all, we are so grateful for you. You allow us to do what we love everyday. From helping younger couples find their first homes to helping seasoned investors find good deals and everything inbetween, we are honored to get to work with you and help you to make wise, informed real estate decisions.

With that said, there are a two market predictions that I would like to share with you.

  1. Santa Cruz will see an Increase in Supply of Housing and Possibly an increase in Density:

Zillow's 2017 Market Prediction for California states that "cities will focus on denser development of smaller homes close to public transit and urban centers". We expect that Santa Cruz will follow a similar trend. With the City and County of Santa Cruz well aware of the fact that housing affordability has become an issue in our town, plans such as the Corridor Rezoning project are moving through our local government.

Additionally, state and local governing bodies are working together to remove barriers to affordable housing, and all eyes are on our state-wide supply shortage. If regulations and restrictions are changed at these levels, we can expect an increase in development. However new construction may not begin until well after 2017 given that changing public policy is not a speedy process.

  1. Nationally, Home values will grow 3.6 percent in 2017, here in Santa Cruz we expect home prices to continue to increase, but not as rapidly .

According to more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey National home values have risen 4.8 percent so far in 2016. Here in Santa Cruz we've seen very high appreciation rates as seen below. Looking at the "% Change from Year Before", under "Median Home Prices", you will see that every City in Santa Cruz county has seen an 8% or higher change in median home price with all but one City experiencing double digit increases.

We do believe that Santa Cruz County will have higher appreciation than the national trend though the percentage increase in home values will likely slow. We are already seeing a plateauing of home price increases locally and expect this to continue.

3. More Millennials will move into the housing market.

We expect that, slowly, the largest home buying population to date will begin shopping for their first home. We say slowly because this population is also largely burdened with student loan debt and high rents making obtaining a mortgage and saving for a downpayment more difficult.

However, as this generation moves into their late twenties and thirties, they will start looking for home-buying opportunities. If you are a millennial, read this newsletter, we provide important information about the home-buying process, low-rate loans, and downpayment assistance programs below.

If you are a parent/grandparent/loving friend and mentor to a millennial, please share your wisdom, experience, and knowledge about the home buying process. Additionally, please share the information we've provided below, including a free First Time Home Buyers Guide. As seen in the 2008 financial crisis, an educated homebuyer is vital to the health of our real estate market and economy.

We strive to help educate, empower, and support these young first-time homebuyers, and so if you know someone who we may be able to help, please let us know.

National Real Estate Articles

Continuing to Follow Trump's Policy Proposals and How They Will Affect Real Estate

More than a month after the election, we have gained some clarity as to how Trump's presidency will affect real estate, however much of the forecasts that we've come across are akin to peering into a crystal ball.

One of the major changes will be the repeal of estates-tax, which is "virtually certain" according to Michael Graetz , an estate-tax expert who was a Treasury official during the administration of George H.W. Bush. Mr. Graetz also points out that this will give a tax cut to some of the wealthiest Americans ( source ).  Only the estates of the wealthiest 0.2% of Americans owe any estate tax. This is because of the tax's high exemption amount, which is at $5.45 million per person in 2016. There are two sides to the debate, you can find arguments here and decide for yourself.

As this article points out, researchers suspect that some of Trump's policy proposals may increase inflation, which will also put an upward pressure on already rising rates (see article below). However, as noted in our previous digest, Trump may loosen lending standards, making it easier for some buyers to obtain a loan.

Finally, if Trump follows through on his promise to crack down on immigration and toughen up laws, this could result in higher labor costs for developers. This can potentially prolong the delay in increasing the much needed housing supply here in California.

More to come on this topic in future Digests!

Mortgage Rates- On the Move

Having studied Economics, I learned about the Federal Reserve's influence on the Fed's fund rate. This is the short term interest rate that banks use when lending to one another. This rate, in turn, influences mortgage rates (read how here ). As someone who loves school, I was very interested to see that with the Federal Open Market Committee meeting (FOMC) still nearly two weeks away, interest rates are already on the move.
Check out the latest post from Freddie Mac on mortgage rates:
In a short week leading up to the Thanksgiving holiday, the 10-year Treasury yield rose 8 basis points. The 30-year mortgage rate followed suit, rising 9 basis points to 4.03 percent. This increase marks the first week since 2015 that mortgage rates have risen above 4 percent.
30-year fixed-rate mortgage (FRM) averaged 4.03 percent with an average 0.5 point for the week ending November 24, 2016, up from last week when it averaged 3.94 percent. A year ago at this time, the 30-year FRM averaged 3.95 percent.
15-year FRM this week averaged 3.25 percent with an average 0.5 point, up from last week when it averaged 3.14 percent. A year ago at this time, the 15-year FRM averaged 3.18 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.12 percent this week with an average 0.4 point, up from last week when it averaged 3.07 percent. A year ago, the 5-year ARM averaged 3.01 percent.
Some possible explanations for this rise include include market volatility, movements in the 10-year treasury rates, and expectations that rates will rise after the upcoming FOMC meeting. What I really want to explain is what this means for YOU and YOUR REAL ESTATE.

As seen above, rates are still relatively low, but Economists at the California Association of Realtors predict that rates this low are not likely to come around again anytime soon. Therefore, if you are thinking of buying, this may be a very good time.
We found a nice tool that gives you an idea of rates available to you at different price-ranges (depending on down payment and credit score). Find the link to it below, and we suggest, revisit it. Keep your eye on interest rates, especially if you know that you and your family will be buying within the next 5 years. As this tool shows you, a small difference in interest rates can make a LARGE difference in how much you pay over the lifetime of the loan.
Click here to explore your mortgage-rate options.
If you need help deciding if this is the right time to buy, don't hesitate to call us. We are here to help you make informed, wise real estate decisions.

California  Real Estate Articles

Housing Affordability In California: 

The Causes and Possible Solutions

"We joke that it's the only mobile home park with Mercedes and Teslas in the driveway. It's like the new middle class in California."
-Engineer at LinkedIn

Here in Santa Cruz, if you wanted to buy a home at the median home price of $790,000, you'd end up paying about $3,933 / month with a 20% down ($158,000), 30-year fixed mortgage according to Zillow's online mortgage calculator . There is a common rule of thumb that your housing should constitute ⅓ of your income, and so with this monthly payment, your annual income would need to be around $141,589 (not taking into account the downpayment).

This high of a downpayment and annual income are unrealistic expectations for most first time homebuyers. There are loan programs that can make it easier for these new homebuyers to enter the market (a few are described below), but it is imperative that they seek the help of a professional lender or loan broker to understand the additional fees and stipulations associated with these options. 

Usually when demand pushes up prices as it has in Santa Cruz over the past few years, supply increases to meet growing demand. However, with a sea of permitting and planning regulations making it harder to build, housing development has not been able to keep up. Furthermore, rents can be as high as $2000+ for a one to two bedroom unit, making it even harder to save up for that very large down payment.

The struggles outlined above are being felt throughout the entire state, especially in hot markets like ours, the Bay Area, and Los Angeles. As we see in Santa Cruz, the combination of high rents, low supply and under-building have made homeownership out of reach for many Californians. A renter survey that the California Association of Realtors (C.A.R.) performed shows that renters want to buy but this dream is simply out of reach in today's market.

This is why the C.A.R. held a summit and invited industry leaders, professionals, academics, and community organizers to discuss the current housing affordability crisis faced by our state. It is not yet clear what action plan will come out of this meeting, but we do know that something has to change.

Much of the discussion in the panel labeled "Residential R.E. Development and Affordability: Supply, Zoning, and Land Use in CA" was focused on restrictions many developers are facing. According to panelists, statewide restrictions take the form of environmental regulation (such as CEQA). Additionally, local jurisdictions often have too much discriminatory power to reject or accept projects and can prolong the permitting process, which is very costly for developers.   

According to Ben Metcalf , director at the state's Department of Housing and Community Development, in many jurisdictions there is an accretion of barriers [to development] and not enough up-to-date planning. This has become an issue because planning in the past 25 years has been downzoning.

Majorly impacted areas, such as Mountain View, are starting to move forward on increasing the supply of housing. As this article by the New York Times states a reform-minded Mountain View City Council has supported an increase in its housing stock by as much as 50 percent - including as many as 10,000 units in the area around Google's main campus.

A few months ago, we wrote about proposals to change zoning along the four main corridors in Santa Cruz County. It is clear that the City Council and County Board of Supervisors have decided that the best place to develop a substantial amount of affordable housing will be along these major thoroughfares. This is a contentious topic for some of the residents of the corridors, as they anticipate increased traffic and noise.

Actions such as these and the C.A.R Summit described above suggests that state and local governing bodies are focused on and looking for solutions to housing affordability issues in our state. 

What are my options?

If you are a first time homebuyer, or simply needing to relocate, you may be wondering: how will I ever buy in this kind of market?

There are programs in place to help.

As mentioned above, the downpayment is a major concern for many first time homebuyers. There are over 400 downpayment assistance programs here in California. You can find them here . Additionally, gift money can be used for a down payment, but there are nuances. You must receive a gift letter from the giver and ensure the funds are seasoned. Read more here .

As many know (and we wrote about above), rates are going up, however, FHA and VA still have low-rate loan options for first time home buyers. Additionally, FHA recently raised their loan limits, which is good news for first-time homebuyers. There was an increase the 2017 conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac to $424,100 on one-unit properties and a cap of $636,150 in high-cost areas. The previous loan limits were $417,000 and $625,500, respectively. The best way to find out about these loan programs is to talk to your banker or loan officer. If you do not have one, we have a list of experienced and highly knowledgeable loan officers in Santa Cruz who would be happy to help you explore your options.

So the truth is, homeownership is challenging for many right now because of high prices, high rents, and low supply. However, the state and local governments are working to remove barriers to development, improving the supply shortage in our state. Additionally, there are loan programs that are helping to break down walls to homeownership for new homeowners.

New Cannabis Laws and How They Affect Real Estate

Prop 64 allows for the recreational use of cannabis for those over 21, however sale and subsequent taxation of recreational cannabis will not go into effect until January 1, 2018 . At that time, you will need to attain a state and local license to legally grow cannabis commercially. Until then, unless you have permission from a doctor, you may not have more than 6 mature plants, and can possess no more than 1 ounce and 8 grams of cannabis concentrate at a time. ( source )

We talked with a member of the County Administrative office and she indicated that, for the commercial cultivation of medical cannabis , there is a draft ordinance that has been proposed. The Supervisors will be discussing commercial cultivation of commercial recreational cannabis at a later date (so stay tuned).

The following categories of local licenses are included in the draft ordinance and give the right to grow commercial medical cannabis in certain zoned areas within unincorporated Santa Cruz County.

(A) Class CA licenses for cultivation taking place on parcels zoned CA (Commercial Agriculture) per the Santa Cruz County Zoning Ordinance (SCCC section 13.10.311 et seq. ).

(B) Class A licenses for cultivation taking place on parcels zoned A (Agriculture) per the Santa Cruz County Zoning Ordinance.

(C) Class RA licenses for cultivation taking place on parcels zoned RA (Residential Agriculture) per the Santa Cruz County Zoning Ordinance.

(D) Class C-4 licenses for cultivation taking place on parcels zoned C-4 (Commercial Services) per the Santa Cruz County Zoning Ordinance.

(E) Class M licenses for cultivation taking place on parcels zoned M-1 (Small Light Industrial), M-2 (Light Industrial), or M-3 (Mining, Agriculture, etc.) per the Santa Cruz County Zoning Ordinance.

(F) Class TP licenses for cultivation taking place on parcels zoned TP (Timber Production) per the Santa Cruz County Zoning Ordinance.

(G) Class SU licenses for cultivation taking place on parcels zoned SU (Special Use) per the Santa Cruz County Zoning Ordinance.

For many, it is required that you go through a registration process to obtain a license, however the 90-day registration period has already closed in Santa Cruz County. You can check this website to see if/when it reopens as well as to find out more about the registration and licensing processes. Only registered cannabis cultivation sites will be eligible to apply for a local license when they become available. Furthermore, a local license will be required to apply for a state license.

There is an exception to this 90-day registration period limit. The registration process is voluntary for those persons or entities with a documented history of over 3 years of commercial farming or agricultural production unrelated to cannabis production in the CA zone district.

So in summary: to obtain a local license you must have been either 1) cultivating cannabis in Santa Cruz County since January 2013 and be registered; or 2) have been engaged in commercial farming or agricultural production unrelated to cannabis production for over 3 years in the CA zone district to be eligible for a local license.

If you'd like to take a look at the proposed ordinance, click here . This proposed ordinance must go through an Environmental Impact Study, which will take about 8 months.

Information on the California state licensing process can be found here .

As mentioned above, the Board of Supervisors will be taking up the issue of commercial cultivation at a later date. You can find information about the scheduled meetings here . You can watch the Board of Supervisors agendas which are always posted the Thursday prior to the Tuesday Board Meeting. Click on the date to see the full agenda or open the agenda and search by keyword cannabis - if nothing comes up there is nothing related to cannabis on that agenda.

Featured: Our New Home Buyer's Guide

Susan and John are first-time homebuyers that we've been working with for a few months. They first called us with a plan to buy in the next year, and wanted to know "Where do we start?".

This scenario is more common than you can imagine, with first time homebuyers representing over ⅓ of the buyers in California.

To help Susan, John, and all of you who are in a similar situation, we are supplying the First Time Homebuyer's Guide. This is our Holiday Gift to you, and in the spirit of giving we ask that you share it with anyone who you think may benefit from reading it.

This easy to understand guide is designed to give you the outline of the homebuying process and answer important questions such as: "Roughly how much home can I afford?", "What options do I have for getting loan?", and "What would put me in a stronger position to negotiate the home's price?".

Get your FREE Homes Buyers Guide HERE .

Of course, we are also here to answer any questions you may have.