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)


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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Central Coast Lending: Market and Mortgage Rate Update

Market Update

Last week was a light one for economic data, and included retail sales and little else. Standard weekly releases included the Mortgage Bankers’ Association home loan application index, unemployment claims, and Freddie Mac’s average 30-year fixed interest rate tracker.

Retail sales picked up speed in October, jumping 0.3% over the previous month. The “core” measure, which excludes automobile and gasoline sales, increased 0.6%.

Mortgage purchase activity fell 1.0% last week, and refinance activity fell 11.0%, despite the fact that Freddie Mac registered the national average of the 30-year fixed near its 2014 low – at 4.01%. Last year at this time, the 30-year average was 4.35%.

Lastly, unemployment claims rose to 290,000, which is the highest reading in seven weeks.

Overall, the data is nothing much to write home about. This week, we will see data on industrial production, existing home sales, consumer spending, and housing starts.

To start the week, stocks have improved, with the S&P 500 on pace for its 42nd record close of the year.


Mortgage Rate Update

Mortgage rates start the week lower. Japan’s economy unexpected contracted by 1.6% last quarter. As we have seen, poor economic news around the globe benefits pricing for mortgage rates.

Since August 1, rates have spiked, dipped, spiked, and dipped again. Our graph below takes a look at the pricing for the 4.125% 30-year fixed rate. “Points” refer to the cost that borrowers pay to obtain the 4.125%, expressed as a percent of the total loan amount (in this case, $417,000). Our test case assumes a premium-type loan, with a borrower credit score of 760, a Debt-to-Income ratio of 35%, and a purchase of a single-family detached home.



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!

About   ||   Mortgage FAQ   ||   Market Update Blog   ||   Radio Show   ||   Contact

Central Coast Lending’s Market and Mortgage Rate Update

October Employment Report: “Reassuring” or “Meh”?

The October employment report has been described with dueling descriptors by pundits and analysts, both as: “meh” and as “reassuring.” In this case, perhaps no news is good news?

Payrolls added another 214,000 jobs in October, and the unemployment rate dropped to 5.8%. The number came in slightly below the average projection, but still within the range of expectation.

First things first: the threshold of 200,000 new jobs per month is typically used as an indicator for a healthy economy, and monthly payroll growth has consistently eclipsed this number in 2014. Over the past year, there are 3.8 million more people who are employed in the United States economy.

What’s more, according to the real estate and finance blog Calculated Risk, 2014 is about to finish as the best year for employment growth since 1999.

And of course, sinking unemployment claims continue to set new 14-year lows seemingly every week.

Is this a recipe for “meh” employment?

True enough, the employment growth can hardly be considered explosive. Underlying concerns remain, especially with the slumped pace of wage growth. If wages are stagnant, then sectors that rely on consumer purchasing power, like retail sales and real estate, could slow.

More questionable news: the civilian labor force participation rate of 62.8% is still well below the 66% ratio prior to the recession. The employment-population rate ticked up to 59.2%.

The 5.8% measure of unemployment looks great, but another measure known as “U6” puts unemployment at 11.6%, once accounting for part-time workers who want full-time work, and discouraged workers who believe they can’t find a job.

So the report isn’t overwhelmingly positive, but “meh”? My reaction leans towards that of Randy Frederick, managing director of trading and derivatives at Charles Schwab. Frederick was quoted in a CNBC article on the employment report:

“The mid-terms are behind us, Fed tightening is behind us, and the economic data continues to look good; I’m not an uber-optimist, but I’m having a difficult time finding anything to worry about through year end,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

I’m having a difficult time finding anything to worry about through the end of the year.

With worries about the “slowing global economy” a consistent refrain, it is nice to see that U.S. put together a strong year of employment growth.


Maybe a bit, but given the rest of the world, “no news” looks a whole lot like “good news.”


Mortgage Rates

You may recall a few weeks ago that mortgage rates plummeted sharply and quickly to their lowest level in 18 months. The dip came as investors reacted to the “slowing global economy” (as mentioned above) and various geopolitical concerns. The major U.S. stock indexes – Dow Jones Industrial Average, S&P 500, and Nasdaq – dipped near to “correction” territory, defined as a 10% drop. This instability offers a beneficial environment for mortgage rates.

Since then, mortgage rates have popped back up. Just today, the Dow and S&P 500 were trading at all-time record highs during the trading day. Earning reports, employment / unemployment… the news is pretty good for the economy, which gives investors the incentive to leave the “safety” of bond markets and pursue the higher-yielding, if riskier, stock market.

Though the price improvements have largely been erased, rates aren’t too far from the historical low levels reached in 2012 / 2013. Relative to rising mortgage rates, a bigger concern for the real estate market seems to be rising home prices and constrained supply. CNBC real estate reporter Diana Olick wrote in a recent column:

What is holding buyers back today is sticker shock. Home prices bounced off the bottom far more quickly than most had expected, thanks to heavy, all-cash investor interest. Prices rose considerably faster than income growth, and now that investors have slowed their purchases, mortgage-dependent buyers are not picking up the slack, even as rents continue to rise. Higher rents, in turn, are keeping some borrowers from saving for a down payment.

Central Coast buyers can commiserate: prices have risen steadily from their 2011 valley, with the SLO County average up about 30% in 36 months.

The lesson from this changing environment: always be prepared, so that you can act when the time is right. Give us a call at 805.543.LOAN for a completely free, honest, and confidential discussion about your finances. Once pre qualified, we can act quickly should rates fall or should the right home become available.

Mortgage Rates Rise; What Now?

Mortgage rates continue to trend upward. Since our update last week, rates have added another 1/8 to 1/4 of a point in cost. The upward trend comes just weeks after the volatile stock market helped rates dip to their lowest level in 18 months.

The upward movement might be frustrating for buyers and / or existing owners who wanted to conclude their mortgage financing activity during the low window. Is it worth waiting and hoping for a another drop? Consider: rates are still very close to record lows on the historical spectrum. You will still be paying much less for a lower rate than you would have five to ten years ago.

If this doesn’t sooth your mind, we can offer a bit of advice. First: make sure that you are pre qualified so that you can act quickly when the time is right. Anytime doubt or volatility enters the market, mortgage rates have the potential to dive. Given the geopolitical situation (rocky economies, ugly geopolitical battles and standoffs), this could happen at any time.

Second: there is no second piece of advice (see what we did there?). Every situation really is different. Sometimes it isn’t just a lower rate that helps people save on their refinance, but the ability to eliminate costly mortgage insurance. Buyers might be able to use low-rate middle-income loan programs to improve their affordability (think: USDA Loan).

Give us a call at 805.543.LOAN with any of your home loan questions. We are happy to help you work through whatever issues you might encounter.