A New Year, A Stronger Market

Santa Barbara real estate hit the ground running in 2013, with momentum from the pickup in 2012 carrying us well into February of this year.  One of our very own Village Agents was recently published in the Santa Barbara News-Press, presenting a statistical review of the 2012 Santa Barbara real estate market.  Undoubtedly, the market has and will continue to flourish as we dive into 2013.  The article below provides helpful explanations, graphs, and statistics to narrate the changes Santa Barbara's market has seen over the course of the last several years.  


At the start of the new year, what is “out” and what is “in” for our local real estate market? Caution is most certainly out and, yes, confidence, (one might even call it desire), is in.

It is often said that the bottom of a real estate cycle can only really be identified with the benefit of hindsight. Arguably, the turning point in the Santa Barbara South Coast real estate market may well have been mid-2011 to mid-2012. There are several statistical phenomena that, analyzed together, seem to strongly support that point of view.

Let’s start by reviewing the graphs. The first graph gives the median price for years 2000 through 2012. (Median price is the mid-point for any group of sales, where half of the sales were for less and half were for more.) The median price is also an indication of the “mix” of home prices, for example, as more lower priced homes sell, the median price will move down. A stubbornly lower median price is possibly due in part to the idea that coming out of a challenging economy, people are sensitive to their monthly costs and are gravitating towards lower cost homes.

In the chart you will clearly see that the median price for 2012, at $795,000, it lies approximately midway between the 2002 and 2003 median price levels. Additionally, the median price chart illustrates how today’s median price is, on average, 30-35% lower than the height of the market in years 2005 through 2007. Following the steep decline from 2007 through 2009, the median price has remained close to the $800,000 level for four years. As the inventory of available properties continues to be absorbed at a steady pace, and buyers remain motivated to buy, we anticipate that the median price will begin to climb sometime in 2013.

The second graph, giving sales totals from 2000 through 2012, clearly shows how strongly the volume of sales has increased. More houses and PUDs sold in 2012 than any of the previous years since 2000. (PUD stands for a home in a “planned unit development.”) The number of sales for 2012 is up a sensational 33% from 2011, and exceeds the annual numbers during the height of the market in 2004/05.

As a quick retrospective, our local real estate market showed signs of weakening in 2005, which was initially limited to entry-level housing in Goleta and Carpinteria.  Foreclosures began to steadily increase in those communities, and through 2006, many bank-owned properties languished unsold. The median sold price for houses and PUDs in the city of Santa Barbara maintained a peak of approximately $1.2 million from 2005 through 2007 following several years of strong sales and appreciating values. Over the same period, neighboring Montecito, an area with a much higher percentage of more expensive homes, continued an upward march in median and average sold prices, going up around 10% per year through the end of 2007. As prices of higher priced homes peaked, entry-level housing began to show signs of a slow recovery, although prices would continue to slide. 2008 through 2010 saw values of mid and upper-priced properties sink considerably, by as much as 30-40%. The first quarter of 2010 saw a re-emergence of high-end estate sales, a market that had been virtually at a standstill. Fast forward to 2012, entry-level housing has had strong sales for the last two years, and the past 12 months have seen steady sales numbers in almost all other price ranges.

The dollar volume of sales for houses and PUDs for 2012 is up a staggering 54.6%, from 2011. Over $1.7 billion of residential real estate changed hands, as compared to a little over $1.2 billion for 2011.

By way of further analysis, months of inventory, often referred to as “market velocity,” is one of the better statistics to illustrate the amount of bullish activity in today’s real estate market. It is a way to compare the number of new pending sales, in the immediate past 30 days, with the number of homes still for sale. It shows the approximate amount of time it would take to sell all available properties, assuming no new listings, at the current pace of sales. The lower the number, the more active the market. Three months of inventory or less is suggestive of a strong sellers’ market; three to six months is a more balanced market; six to nine months of inventory is indicative of a buyers’ market; nine months of inventory or more is a soft or weak market that is highly favorable to buyers.

Locally, months of inventory numbers have dropped steadily over the past twelve months and have plummeted since the real estate doldrums of 2008/ 2009. As of the date of this writing, for the Santa Barbara South Coast, there are only 303 homes and PUDs for sale! This includes all price ranges and all neighborhoods from Carpinteria to Goleta. A total of 77 homes and PUDs went into escrow in the immediate past 30 days, giving 3.9 months of inventory market-wide, a solid sellers’ market. As has been documented in this monthly column, properties priced under $1 million are selling at the highest rate, and there is currently an extremely limited 1.3 months of inventory for that market segment – 58 homes and PUDs for sale and 46 that went in escrow in the past month. In this under $1 million market, the dynamic of “more buyers than properties” is being played out throughout the local market in the form of multiple offers. Some properties that are priced very aggressively, often bank owned homes, are receiving more than 10 offers.

Other indicators that can help show where we are in the recovery phase include average days on market and the percentage of the listing price compared to the sold price. For the month of December 2012, properties were on the market for an average of 56 days. This is a steep drop from the same month a year ago when it took on average 101 days to sell a home. List price to sold price percentage increased slightly from a December 2011 level of 92.61% to last month’s number of 93.94%. (This is the sold price percentage of the last list price, after any interim price reductions.) Additionally, we are seeing that a larger proportion of our transactions are cash sales. Could it be that investing in Santa Barbara real estate is viewed as a more secure investment than today’s financial markets? Also, investors are seeing that in many cases, a good rental property investment can yield a higher return than the stock and bond markets.

One interesting “behind the scenes” indication of the strengthening market, and indeed, buyer/investor confidence, is the steady increase in the number of lot sales. New construction nearly ground to a halt following the financial markets melt-down at the end of 2008. Fifty-four residential lots were sold on the Santa Barbara South Coast in 2012; 24 in the first half of the year and 30 between July 1, 2012 and December 31, 2012. Totals for 2011 were 42, 43 for 2010, and 30 lot sales for 2009, indicates a stable and increasing trend. In our opinion this increase in the number of vacant land sales illustrates that the risk tolerance for buyers has increased.

What about prices? In spite of the continued flat median price, we are now seeing slight increases in prices in the under $1 million price range, especially for those properties under $800,000. Sellers are now pricing properties at close to market value, or even purposely below market, in an attempt to attract more than one buyer and thereby benefitting by the price being “bid up.” This is often resulting in the eventual sales price being as much as 10% higher than the listing price.

But where are we with distressed sales? And what impact are these transactions having on today’s market? In 2012, 346 of the 1,256 house and PUD sales on the South Coast were either short sales or bank-owned. This number was 260 for 2011 when we saw a total of 943 sales for the year. This represents 28% of the total sales for both years being short sales or bank-owned properties. These sales do impact neighborhood values as regular sellers are compelled to compete price- wise with bank sales. This is one reason why even with the surge in number of sales, the median price remains flat.

As far as high-end sales, for properties priced over $5 million, the number of sales of homes reported through the Santa Barbara Multiple Listing Service increased almost 100% year over year. There were 25 such sales for 2011 compared to 48 for 2012! Most sellers in this market have now adjusted their expectations on price, which has coincided with a steady increase in ready buyers in this price range, throughout 2012. Many buyers are from other countries and have cash to spend. This shift in the estate-market has led to a larger number of successful closings.

An already active South Coast condominium market, often a first step for new buyers entering the housing market, as well as eager investors, continued to gain momentum throughout 2012. Sales of condos increased 66.6%, from 2011 to 2012 and the dollar volume surged from $156.5 million to $246.3 million in 2012. The median sold price for 2012 was $399,900, a dip of 4.3% for 2012, over 2011. (The median price for condos was impacted by a recent flurry of closings of resale- restricted “affordable” condos, including many in the lower Riviera development of Bella Riviera.)

We do believe that today’s market can offer benefits for both buyers and sellers. Buyers, who have the staying power to weather possibly several multiple offer situations, are buying homes at 2002 or 2003 pricing levels. With this increased pool of buyers, sellers now have a good likelihood that their home will sell promptly and possibly for over asking price, allowing sellers to begin the next chapter of their lives.

The Chief Economist of the California Association of Realtors, Mrs. Leslie Appleton-Young, recently summed up the California market this way .. she described the combination of low prices and historically low interest rates, as “a buying opportunity that comes around only once in a generation.” To me, that statement says it all!