2009 Year-End Real Estate Statistics
From Fear to Action!
Happy New Year! We begin 2010 with some encouraging trends in place in certain
segments of the local real estate market.
First, a little retrospective. The year 2009 began with heightened uncertainty:
approximately four years of softening real estate values were followed by a near
meltdown in the banking and financial industries in the latter part of 2008. Subsequently, the availability of credit became even more restricted; there was little to toast in the early months of last year. For the month of January 2009 there were only 63 real estate transfers on the South Coast (all closings including homes, condos, land and commercial properties). It was the weakest January for at least six years.
But, as they say, “that was then.” We closed 2009 with the second strongest number of
December closings, 161, for any December since 2004. Also, the total number of closings
for all of 2009, at 1433, beat 2008’s total of 1365.
What happened during this transitional year of 2009? Confidence returned to investing in Santa Barbara South Coast real estate, primarily in entry level homes and condos.
Historically, the reestablishment of a strong low-end market forms the foundation for a
future market-wide recovery. We begin 2010 with only two months of inventory for
properties priced at $800,000 and below -- firmly in sellers’ market territory. (As a rough gauge, under three months of inventory would indicated a sellers’ market; three to six months, a balanced market; six to nine months a buyers’ market and over nine months a very soft market.)
Buyers who decided to step into the market this past year quickly found they were not
alone and were often unsettled to find themselves in multiple-offer situations. Many well-qualified buyers who went through the painstakingly detailed process of getting “pre-approved” with a lender found themselves usurped by one of the high number of cash
buyers waiting in the wings for the right property. Savvy investors, who have “bought
low and sold high” across many real estate cycles are now buying in large numbers.
A large number of first-time buyers remain anxious to buy as we begin 2010. Attractive
prices, coinciding with historically low interest rates has increased the affordability ratio dramatically. According to Tim Taylor of Prospect Mortgage, interest rates remain in the high 4% to low 5% range for loans under $729,750 and indications are that the Fed will not move to raise rates through at least the end of 2nd quarter of 2010.
The government sponsored income-tax credits further fueled this solid recovery in the
low end, for which 2009 will be known. According to estimates from the National
Association of Realtors, 4.4 million Americans will look to take advantage of the home-
buyer tax credit before it expires on April 30, 2010, (a bona fide contract negotiated prior to April 30, 2010 would need to close escrow before June 30, 2010 to qualify).
For all this encouraging activity in the under one million dollar price range, the statistics show a distinct “tale of two markets.” As one compares the various market segments by price range … under one million dollars; one to two million; two to four million, and on up … as the prices increase, the pace of sales slows significantly. The high-end market remains very soft -- soft, but not dead. There were two closings in the beachfront community of Padaro Lane in December, one for $17,500,000 and another for $25,500,000. Additionally, a spacious and deluxe downtown penthouse condominium closed in December for an astounding $4,175,000. However, there are currently 42 properties for sale on the South Coast over $8 million in the MLS, giving us a sluggish 20+ months of inventory for that market segment.
Chart 1 clearly demonstrates this dichotomy in our market. Goleta, with a predominance
of entry-level housing has only 4.4 months of inventory, whereas Montecito has 24
months of inventory. (Months of inventory, or “market velocity,” is the number of
months it would take to sell all available listings in any one market segment, at the
current pace of sales – assuming no new listings). The average for the entire market, for homes and PUDs, is 8.6 months of inventory – reflecting an “active” buyers’ market.
Condos are selling steadily and we have 7.5 months of inventory in that particular
market.
The good news for sellers in the $1 million+ price range, as compared to one and two
years ago, is that there are buyers, (again, many with cash), now ready to submit a bid
when the right property comes along. Many have been watching and waiting for up to
three years; they now feel that asking prices have adjusted enough to reflect value.
Buyers are cautious, but nonetheless excited to find their “deal.” The fear that gripped buyers 12 and 24 months ago of “catching a falling knife” has all but gone.
So, how can a seller, in the upper price ranges, attract the buyer, who has, say, 16 homes to choose from? Pricing in all market segments, of course, is key .. the perception of “overpricing” will mean fewer showings and most probably no offers. Homes that are listed “too high” will see the weeks turn into months with little or no activity. A price reduction will then be tried, but nothing can recapture that all important “15 minutes of fame” as a new listing. Sellers would be well advised, when considering a price “range” for their home ($2.2 to 2.5 million, for example) to select a list price toward the lower end of the established “range.” In this market, “trying” a list price for the first several weeks of marketing a home will most likely be counter-productive for a seller.
Secondly, sellers should, where possible, complete unfinished repair projects or minor property upgrades; buyers are seeking out well-presented homes in good to excellent condition; “fixer properties” are only selling at heavily discounted levels.
From a national standpoint, there is enough competing data on the US economy to keep a debate team at Harvard busy for months. The impact of ongoing widespread unemployment will continue to be the driving force behind high foreclosure numbers in 2010: according to research conducted by Prospect Mortgage, nearly 307,000
households, or one in every 417 homes, received a foreclosure-related notice in
November 2009. The Santa Barbara area has its share of distress sales … bank-owned
properties as well as short sales, (where the lender agrees to take less than is owed on a mortgage). However, these distressed properties are selling well and are being absorbed steadily across all market segments.
As the saying goes … “all real estate is local”. Our climate, vibrant community and pure beauty of the Santa Barbara environment is no secret to the tens of thousands of people across the US, and indeed from other countries, who have dreamed of moving to Santa Barbara “someday.” Someday has now come for many, as they find they can now afford to buy a home here. With the South Coast median price for homes and PUDs, currently at $849,700, which is down almost 18% over 2008, the word is out that “value and opportunity” is alive and well here in our real estate market.
Historically speaking, here on the South Coast, across all real estate cycles, slowed demand has created pent-up demand. The valve is now open and demand is flowing … gushing in the low-end and trickling in the high-end … but it is flowing.
Chart 2 demonstrates well the steady strengthening of the South Coast market. Looking
at the “5 year average solds” you will notice how the trend follows the accepted seasonal flow of “more sales in summer vs. fewer sales in winter.” The trend for 2009, however, sets a new course of steadily increasing sales, ending the year with December’s sales being only slightly below the highest month of June 2009. The dip in “sales pending” for the year-end, may be the result of first time buyer activity that peaked the month before as the tax credit was due to expire. With the extension of that credit deadline, even more buyers will have the time to take advantage of the opportunity to purchase in Santa Barbara.
We look forward to another strong year in real estate activity … activity solidifies values. Whether you are a buyer or a seller there are advantages in today’s market for you. Have a healthy and prosperous 2010.
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