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San Luis Obispo County Real Estate Update

The San Luis Obispo County real estate market has cooled to begin 2014, retreating slightly from the buyer-heavy frenzy that characterized the past 24 months.

The median price sales of SLO County single-family residential homes has jumped 30% over the past 24 months to $480,000, according to data made available by Keith Byrd, who aggregates data from the Scenic Coast Multiple Listing Service on his website

As prices continue to rise, homes priced on the lower-end of the market are seeing the most competition.

“Recently, we saw a three bedroom, two bathroom house in Arroyo Grande on a slightly larger lot than normal go for $15,000 over the asking price of $415,000,” said Central Coast-based realtor Lindsey Harn. “The property was priced well – maybe too well.”


Higher mortgage rates have also had a negative effect on affordability.

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The Federal Reserve had helped mortgage rates to drop to historic, record lows through the monetary stimulus policy known as Quantitative Easing. At peak, the Federal Reserve scheduled purchases of $45 billion in U.S. Treasury bonds and $40 billion in mortgage-backed securities (MBS) per month.

The large, guaranteed source of demand for bonds put downward pressure on mortgage rates, and by November of 2012, Freddie Mac’s national average of the 30-year fixed rate (3.31%) had reached the lowest level on record.

The Fed’s 2013 decision to reduce quantitative easing meant that mortgage rates would move up from their record-low levels. The first reading in 2014 put the 30-year fixed average at 4.56%, over 1.0% higher from the previous year.

– 35%

Estimated drop in home affordability over past 24 months.

Higher rates and higher prices are effecting what local families can afford. Central Coast Lending loan officer Bob Moss calculated that real estate affordability has dropped by about 35% over the past 24 months.

At its most affordable level in 2012, a family making $52,714 could afford the median priced home ($369,000) at an average 30-year fixed rate (3.31%). Today, a family would need to make $71,342 to afford the median price ($480,000) and rate (4.29%). (Calculation includes property taxes and homeowners insurance.)*


Harn points out that the current market looks more normal than the Federal Reserve-juiced affordability levels.

“Sales are down partly because a lot of entry level buyers who were on the fence already took advantage of the low interest rates and are now in homes,” said Harn.

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The total pace of single-family sales through the first four months of 2014 (758 sales total) has slowed year-over-year for the first time in five years. The number of normal sales (709), however, were the most since 2007.

There are fewer low-end properties on the market because the supply of REO (foreclosure) and short sales on the market has dried up. These “distressed” properties are priced lower than “normal” listings. For example, the normal properties in 2011 were listed at a median of $425,000. During that year, REOs were listed at a 35% discount ($275,000) and short sales were listed at a 23% discount ($329,000).

Through April of 2014, just 6% of listed properties were either REO or short sale, a sharp three-year drop from the 2011 average of 39% distressed.

As affordability continues to decline, potential buyers on the lower end of the market are increasingly in search of mortgage programs that can accommodate a wider variety of financial situations.

“I am seeing buyers looking for the cheapest way to gain entrance into a home because it is hard to save a substantial down payment,” said Moss. “The USDA and FHA programs offer the buyer an opportunity to purchase with a much smaller amount of cash.”

Moving forward, it seems that we are finally approaching a more balanced market. The Fed still has a good deal of tapering (reduction) of its stimulus program, and housing markets will continue to stabilize from the economic recession and foreclosure crisis that came from the housing bubble collapse.

Learn more about Central Coast real estate through the first quarter of 2014 with our in-depth reports:


* Calculation includes property taxes and homeowners insurance. Assumes 20% down payment, 760+ FICO score, and a 40% Debt-to-Income ratio. Average conforming 30-year fixed rates taken from Freddie Mac’s weekly national average survey.  

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 to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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