High-paying Silicon Valley employers like Google and Apple helped drive home prices up 16.9 percent in commuter-friendly Scotts Valley over the last 12 months, but new local and federal laws may cool that red-hot pace.
Forty-six homes were sold in the three months that ended June 30 in Scotts Valley’s 95066 ZIP code, with a median sale price of $1,058,500, according to appraiser Frank May. In the same quarter of 2017, there were 41 sales at a median price of $905,000.
In the 95018 ZIP code, which includes Felton and other parts of San Lorenzo Valley, 28 homes sold in the second quarter of 2018 at a median price of $662,500 compared with 35 sales at a median of $629,500 in the second quarter of 2017. That’s a nice 5.3 percent increase, but not as steep as Scotts Valley’s 16.9 percent jump.
Realtor John Ultsch listed a house in Scotts Valley with an asking price of $999,000. He said he held open houses that were attended by 60-80 people each day, with 80 percent to 90 percent of them coming from Silicon Valley.
Bidders drove up the price, and the home sold for $1.3 million. The sellers used the proceeds to buy a large house near a lake in Austin, Texas, for $425,000, and also plan to buy a vacation home 3 and half hours away on the coast in Corpus Christi, and will still have plenty left over, Ultsch said.
Santa Cruz County attracts Silicon Valley workers with its cool summer climate and proximity to beaches and redwoods. Peg Popken, a Realtor in Capitola, said the worsening traffic on Highway 1 has helped Scotts Valley stand out.
“People who bought in Aptos when it was a decent commute to Silicon Valley are now finding that it takes 20-40 minutes longer than it used to,” she said.
Realtor Wayne Shaffer said prices are “obviously inflated” and so are rents. In response, the city of Santa Cruz has passed temporary ordinances limiting rent increases and making it harder to evict tenants.
In November, voters in the city will decide on a ballot initiative that Santa Cruz Realtor Neal Langholz said would create a Rent Board to set how much landlords are allowed to raise rents, and also decide on their own salaries, to be paid by landlords.
If passed, the law would make owning rental properties in Santa Cruz less attractive and spur landlords to sell, reducing the supply of rentals available and increasing the number of homes for sale, Langholz said.
Another change is the federal tax reform that took effect this year. Taxpayers can only write off up to $10,000 in state and local tax, which includes property tax, and can only write off interest on a mortgage up to $750,000. These changes make high-priced homes less affordable.
A strategy to deal with one federal change was suggested by Realtor Bryan Chambers, who observed that buyers a generation ago stretched their finances to afford a fixer-upper, then put in sweat equity to improve it.
“Today’s buyers work long hours In Silicon Valley and don’t have time for big projects,” he said. “They often can pay top dollar and want everything to be perfect.”
If instead they bought lower-priced fixer-uppers, they would have a lower assessed value for property tax purposes, then could make gradual improvements, he said.
A year from now, after the Santa Cruz rent control issue is settled and taxpayers have filed their first returns under the new federal tax law, I will revisit this topic and discuss how these changes affected local housing prices.
- Mark Rosenberg is a financial consultant in Scotts Valley with Western International Securities, a member of FINRA and SIPC. He can be reached at 831-439-9910 or mr********@wi*******.com.
