Santa Barbara Real Estate (2009 compared to 2008) for Santa Barbara South County
[Montecito, Hope Ranch, Santa Barbara, Goleta, Carpinteria and Summerland]
For the Santa Barbara area, single family residence sales trailed 2008 for most of the year until the end of October, when sales moved ahead of 2008 by about 7% to finish the year with around 830 sales. Condo sales started the year way behind 2008 but then surged forward, and finished the year about 16% ahead of 2008.
The median sales price was a different story. Single family residences went from a median sales price of $1,050,000 in 2008 down to $850,000 in 2009. When you remove Montecito and Hope Ranch from the equation, the median sales price for 2009 was $750,000 for the year down from about $870,000 in 2008. This drop in the median sales price for the whole area means that from 2007 to 2008 single family residence median sales prices fell 12.5% and from 2008 to 2009 prices fell 19%. This totals a decline of 30% in the past two years in the median sales price for homes.
Condo sales prices were not affected quite as much as Single Family residence prices in 2009. They went from a $535,000 median in 2008 down to a $465,000 median for 2009. This translates into a 13% decline for the year. In 2007 the median sales price for condos was about $630,000 which means from 2007 to 2008, there was a decline of 15% and from 2007 to 2009 there was a drop of roughly 26% in the median sales price.
This decline in the median sales price for both single family residences and condos puts it right around the median sales price for 2003, which is comparable to the rest of the country having declined at the same rate in most of the United States. In 2003 the country, and the world, was awash in money for home loans. It was at that time that financial brokerages (along with Fanny Mae and Freddie Mac) began packaging loans and selling them to investors in derivatives and colateralized debt obligations. The effect of these packages combined with looser underwriting standards for loans spurred a 20% rise in the median sales price from 2003 to 2004, and then a 25% rise from 2004 to 2005. From 2005 to 2007 the median sales price remained stable at around $1.2 million locally, and then in 2008 those loans began to unravel, causing the decline in the median sales price almost everywhere from 2007 to 2008 and a further decline on into 2009 ending with the 30% decline in the median sales price for most of the country.
For about the last six months of 2009, prices began to stabilize, and there has been some upward pressure on prices, particularly in the condo market. There are three main factors in causing the upward price pressure. First, there is a general decline in the number of properties available for purchase in the sub-million dollar range. Second, we have the $729,000 maximum FHA loan limit (which is evidenced by the $850,000 median sales price, showing this has become the hot price range), and third is the first time buyer’s income tax credit which has brought a lot of people into the marketplace.
If things remain as they are right now, and things are always uncertain, it looks like sales will continue to increase and will eventually cause prices to rise. This is evidenced by the significant numbers of properties that have entered and remain in escrow at this time. But, there are a couple of elements which are still lurking. First, there is a considerable number of what are called pre-foreclosure properties. The owners of these properties have either fallen behind in their payments or have stopped paying their mortgages altogether. Also, there are a lot of variable rate mortgages which are going to re-set in 2010 with a number of these loans in the million dollar plus range. Whether these pre-foreclosure properties turn into foreclosures and whether it’s a flood or trickle will have a great significance on the marketplace.
The second element that will affect prices is interest rates. At this point interest rates remain close to an all time low, which has allowed Real Estate sales to continue moving forward. Rates are expected to remain level for 2010, but with the government continuing to run up huge deficits, it is only a matter of time before interest rates go up. When interest rates go up we will have a whole different landscape to deal with. People’s ability to qualify for higher loans will be diminished if rates increase, which should cause prices to decline further, and could mean a decline in the numbers of sales.
Two of the most important numbers that determine where the market is going is the number of sales compared to the number of properties that went into escrow. When the number of properties going into escrow is higher than the number of sales, the market is picking up. Conversely if there are fewer homes going into escrow than are sold, the market is slowing.
For 2009 the number of single family home escrows opened was about 120 above the number of sales. For condos the opened escrows were almost 100 over the number of sales. Both of these numbers are significantly ahead of the numbers posted in 2008, which means there is a lot more activity in the marketplace in 2009 compared to the previous year. This shows there is still a great deal of vitality in residential real estate.
A lot of this increase in activity we experienced is the increase in the number of what are called “short sales.” This is a situation in which the seller owes more on the property than the property is worth. A “short sale” generally takes longer because the lending institution or investor can take a great deal of time in deciding whether to accept the reduced price as full compensation for the debt. This is one of the big reasons that there were so many properties remaining in escrow at the end of the year.
Going into 2010, there’s still a lot of strength in the Real Estate market. Sales continue to grow, and there are a substantial number of properties that entered escrow in 2009, most of which will sooner or later become completed sales. The number of homes available for sale has continued to decline, but some of this is seasonal with some sellers taking their properties off the market during the holidays. The number of homes for sale will grow as we move into the year and listings begin to pick up at the end of February. There are still a lot of short sales and bank owned properties on the market. Somewhere between 15% and 20% of the available single family residences and condos are either short sales or foreclosures, what are called REOs (Real Estate Owned) that make up the available properties for sale in the area. Until these properties are gone, prices will remain roughly where they are right now with some upward pressure.
---Statistics from the Santa Barbara MLS
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