A Market in Transition
“What’s going on in the real estate market?” It’s a question agents field on an almost-daily basis, and as of late, my answer to my clients and others is that we are in an adjustment period, with the market, in general, feeling a period of softening.
The number of properties sold in the first half of the year is down 9.1%, from 583 year-to-date in 2017 to 530 this year. July’s numbers also showed a decline: 131 homes, condos, and planned unit developments (PUDs) closed this July, compared to 142 in July 2017. Encouragingly, August numbers as of August 27 show 115 sales, which is up from 109 in August 2017.
Sales and Sale Prices
The Santa Barbara Multiple Listing Service numbers earlier this month giving perspective of how today’s market numbers compare to past years. At the half-year mark, Santa Barbara-area median sales price for single-family homes, estates, and PUDs, was $1,257,500, which is up slightly from last year ($1,250,000). This is the second-highest median sales price in 17 years; in 2007 the median sales price was $1,262,500, which marked the height of the market before the “Great Recession” that ensued after the bursting of the housing bubble in 2008.
Median list price and the number of properties that went into escrow are both down, which tells me some sellers are feeling the tepid temperature of the market and reducing their prices to entice buyers. The median list price YTD in 2018: $1,280,00, compared to $1,495,000 in 2017. This is a 14.4% decrease. Number of pending properties is also down 5.3% (591 in 2018 vs. 624 in 2017).
This is a combination of several factors: the Thomas Fire and subsequent mudslides that impacted more than 400 homes in Montecito, an increase in interest rates, new tax laws that make homeownership less beneficial, and a softening of the market on a state-wide level. Recent data shows that home and condo sales in Southern California dropped 11.8 percent, as prices hit a record high.
Certain Price Segments Remain Strong
In the last few weeks, we’ve seen an uptick in inventory, and I feel confident saying that the market is shifting from a sellers’ market to a buyers’ market, at least in certain price points and in certain neighborhoods. The sweet spot in our market so far this year has been properties priced between $700K-$1M and $1M-$2M. The $700K-$1M segment is up significantly this year, with 244 units sold in the second quarter, compared to 133 in the same time frame last year. From $1M-$2M, we saw 303 sales, compared to 289 in 2017 for Q2.
On the flip side, we saw stark drops in the number of homes sold in the higher price ranges, with the exception of properties selling for more than $7M, where we saw a bit of a boost (11 sales versus 9 in Q2 of last year). Just this month, we saw the closing of six high-end properties over $6M, including four Montecito properties ranging from $8.3M to $16.3M. These sales will serve to boost our numbers for Q3.
Looking at Condos
Condo sales in the Santa Barbara area market remain strong in lower price points. Numbers are up in multiple categories, including properties that went into escrow, number of sold properties, median sold price, average sold price, and total sold volume. Alternatively, the number of new listings and total active listings are up (377 this year vs. 306 in 2017), which increases competition for buyers and may drive down prices. We are also seeing a major stall in high-end condo sales, over $1.5M; only three condos have closed in the last three months.
What’s Happening in Montecito
May marked the first sale of a home destroyed in the Thomas Fire; a 4-acre property on Park Hill Lane closed for $2,050,000. We’ve also seen a few private sales of properties affected by the mudslides, most of which were neighbors buying the property adjacent to theirs. A house nearly destroyed in Montecito Oaks sold off-market for $1.1M, and earlier this month we saw the first marketed property with a home damaged by the mudslide: 202 Olive Mill Road was listed for $3,595,000. There is also a distressed 1.5-acre property on Rockbridge being listed by my office for $1.75M (not in the MLS), as well as a $1.2M Montecito Oaks property on Santa Clara Way listed by Sotheby’s.
I currently have two buyers who are looking for properties affected by the mudslides; both live out of town and intend to build in Montecito after our charred hillsides recover and the risk of a debris flow is greatly decreased.
It’s clear that in the six months following the disaster, we are seeing a lot of transition. Some property owners are staying and rebuilding, some are selling, and some are still weighing their options. Insurance is also an issue, with buyers having a harder time finding an affordable carrier. We are also hearing from homeowners who are being dropped by their insurance carrier; according to our in-house insurance broker, there are carriers who will insure here, but homeowners can expect higher premiums and more stringent requirements.
As we head into fall, I predict that prices will continue to decline slightly as inventory continues to increase. My advice to buyers is to enjoy all that the market has to offer right now; it’s a great time to be buying, especially in Montecito, where there are multiple price reductions on a weekly basis. I’m also encouraging my buyers to consider the ramifications of waiting until next year; we are expecting interest rates to rise as much as a full point by the end of 2019. This can increase a mortgage payment significantly, which may make home buying more challenging.
I expect to see a boost in pending sales come September, when people are back from summer vacation and they will take advantage of the increased inventory. My advice to sellers is, as always, to monitor the market carefully to help inform the list price of your home. There are still hundreds of house hunters looking to buy here, and if priced right, properties are selling fairly quickly.