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Central Coast Real Estate Update

Mortgage rates start the short week slightly lower. We will return with our regular market, rate, and loan program breakdown next Tuesday. For now, see our third quarter Central Coast real estate report:

Central Coast home prices continue to rise, but through the first 9 months of 2014, sales data is beginning to point to something of a slowdown.

[Part 2 of the Central Coast real estate update HERE: Most Affordable vs. Least Affordable]

Consider the following year-over-year statistics:

  • 1,947 total sales (2014) vs. 2,127 (2013)
  • 6.9% year-over-year median price gains (2014) vs. 15.1% (2013)
  • 76 average cumulative days on market (2014) vs. 70 (2013)
  • 97.75% list price / sales price (2014) vs. 98.41% (2013)

Background:

After falling nearly 37% between 2006 and 2011, home prices finally sustained year-over-year growth between 2011 and 2012. By 2013, the economy had begun to register slow (but steady) growth, and the employment situation was beginning to stabilize. Federal Reserve stimulus activity had promoted a low interest rate environment. As European and Asian economies showed signs of slowdown, the perceived safety of U.S. markets helped create hearty demand for U.S. stocks and bonds.

This period of confidence coincided with a run on real estate. Investors perceived the low home prices as “undervalued.” Record low mortgage rates and low prices helped increase purchasing power for family buyers. The market pivoted into a period of high demand and low supply.

2013 marked the pinnacle of the “bull market” for real estate on the Central Coast. The “sellers market” forced buyers into intense competition to win real estate bids.

But where does that leave us in 2014? Consider these three key points:

 

Point 1: Follow the “Distressed Sales”

In 2012, the 29% of single-family homes sold in San Luis Obispo County were “distressed” (short sale or foreclosure REO). Through 2013, just 86% were distressed. Thus far in 2014, just 6% have been distressed.

Short sales and REOs are significantly discounted from normal properties.

  • 2014 Normal Median: $492,000
  • 2014 REO Median: $353,333 (-28.2%)
  • 2014 Short Sale Median: $375,000 (-23.8%)

Saturation of distressed properties will reduce the overall median price of homes in any given market. As fewer distressed properties comprise the Central Coast market, it makes sense that the overall median price would increase.

In other words, the 15% median price jump between 2012 and 2013 reflected the diminishing supply of distressed properties. The 6.9% rise between 2013 and 2014 is a more accurate representation of the “normal” market.

 

Point 2: Bottom of the Market Cut Out

As home prices continue to rise (up 30% since 2011) and distressed property supply disappears (down 33% since 2011), there are fewer opportunities for folks at the mid- to low-end price range to purchase a home.

What low-end supply does remain ends up hotly contested, and so we see bidding wars push sales price above listing price.

Overall, the pace of home sales is 9.3% lower year-over-year through September. However, that dip can be explained entirely by distressed sales. Through the first 9 months in 2013, there were 336 distressed sales in SLO County. In that same period of 2014, that number has dipped to 110. Meanwhile, the 1,837 normal single-family sales is more than 2013’s 9-month total (1,791), and the highest amount since 2006.

 

Point 3: Positives for Buyers

The intensity of the 2013 market helped to bring the real estate recovery into its final stages.

Today, homes are valued at the highest level since 2008 (though still 18% below peak), which gives incentive for sellers to enter the market. More supply will mean more opportunity for buyers to find a fit.

There are two pieces of solid evidence that such a balance is beginning to occur.

Homes are remaining on market slightly longer:

  • 2012: 112 average days on market
  • 2013: 71 average days on market
  • 2014: 76 average days on market

Homes are selling slightly more below list price:

  • 2012: 97.70% of list
  • 2013: 98.23% of list
  • 2014: 97.7% of list

Those may look like small differences, but these percentages are worth thousands. By dollar amount, homes were sold $7,254 below listing in 2013 (relative to median price) and $12,307 below listing so far in 2014. The difference is about $5,000.

This evidence doesn’t tell us what “part” of the market is slowing down (low, medium, high), but it does suggest that on some level, at some small amount, the market is beginning to slide away from the sellers.

We have discussed the Central Coast real estate market generally. For specifics, please see Part 2 of our Q3 Real Estate Update (this one is much more graph / visual heavy, we promise). We answer: which cities are the most affordable? Which cities have the “hottest” real estate market? Which cities are the most expensive?

 


Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email us here to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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