by H&H Real Estate Media in Blog.
2016 South Coast Real Estate Market, the Year in Review
A year ago, most predictions for the 2016 real estate market pointed toward gradual price increases, but with a slightly cooler market. The election certainly proved that predictions are not always correct, but it seems that economists and the media generally got it right for real estate — at least for our beautiful South Coast.
Not all neighborhoods followed the same pattern, but based on data from the Santa Barbara Multiple Listing Service, the overall trend here followed expectations with a higher median price and a few less sales than in 2015. Last year about 2% fewer single family homes and PUDs (planned unit developments) were sold, and the median sale price for the year was $1,149,000, up 4.5% from 2015’s median of $1.1 million. The median price in 2015 had actually gone down compared to 2014, and for three years running it has stayed within the $1,100,000 to $1,149,500 range.
The notable exceptions to 2016 price increases occurred in luxury neighborhoods. Montecito’s median price of $2,795,000 was about 3.5% lower than 2015, and the Hope Ranch median dropped 14.7%. That number doesn’t alarm us too much right now, because Hope Ranch is the smallest market we track, and just a few sales can skew the data.
Together, Montecito and Hope Ranch comprised about 17% of all the sales on the South Coast last year. More robust markets in Goleta and Santa Barbara, which together accounted for 75% of all sales, kept the overall median price on the increase. Here is a table showing the annual change in the median price of homes by area:
Area 2015 Median 2016 Median % Difference
Carp/Summerland 900,000 910,000 1.1% increase
Montecito 2,895,000 2,795,000 3.5% decline
Santa Barbara 1,100,000 1,177,500 7.0% increase
Hope Ranch 3,342,500 2,850,000 14.7% decline
Goleta Valley 859,000 865,000 0.7% increase
South Coast overall 1,100,000 1,149,500 4.5% increase
For condominiums, the 2016 median sale price of $603,000 was an increase of just 1% compared to 2015. The number of closed condominium sales for 2016 (423 sales) dropped nearly 24% compared to 2015, which had 554 sales, but this big discrepancy can mostly be accounted for by the 2015 sale of a 101-unit condominium project, the Hideaway Bungalows; in 2016, there was no large condo project adding high numbers of new units to the statistics. We saw a similar big jump in the number of condo sales in 2012 when the Bella Riviera condominium project was sold, and it looks like we will see the same pattern this year with well over 100 units from the Village at Los Carneros set to close escrow in the coming months.
The biggest story of 2016 was the election, which may have had some effect on the recent rise in mortgage interest rates, but it was bound to happen at some point. We all knew that 3.5% for 30-year fixed loans wouldn’t last forever! The rate started climbing soon after the election and is now up about 3/4 of a point to around 4.25%.
Although we hate to see those low, low rates disappear, keep in mind that they were very unusual. Freddie Mac records that the 30-year fixed rate went from 7.3% in 1971 to a high of 18.45% in 1981, then back down to 10% by 1990, and finally went below 7% starting in 2001. During the recession it dropped under 6% in 2008, below 5% in 2009, and below 4% in 2012 during the recovery years, fluctuating between 3.3% to 4.5% ever since. With this perspective, the current rate of 4.25% still looks like a golden opportunity for borrowers.
What lies ahead for the real estate market in 2017? With so many changes in the air, predictions are difficult to make, but here are a few things we can keep an eye on as we move forward:
First of all, interest rates — the higher they go, the more likely prices would need to adjust downward so buyers could afford their monthly payments. In spite of the recent interest rate increase, though, sales activity was strong in December, possibly because borrowers want to get into new homes before rates go any higher. If rates stay steady or go back down, prices might continue to gradually increase.
Secondly, since the recession, when we saw the annual median price of homes as low as $795,000, the median came up quickly in 2013-2014 and then flattened out quite a bit over the last three years. While prices could continue to increase in 2017, a big run-up seems unlikely. Buyers are price conscious, and the memory of the recession is still with us. Fortunately, buyers are also eager to purchase a property when they find one that fits their needs and budget.
Third, the pace of sales, as reflected in the table’s “Months of Inventory” (MOI) column, has steadily moved upward over the past couple of years. (MOI basically measures the interplay of “supply and demand” market forces.) Coming out of the recession we had a very hot sellers’ market, with overall MOI values under 3 and stiff competition among buyers with upward moving prices and a fast-paced market. Now the market has cooled a little, reflected by the current 4.0 months of inventory measure for the South Coast as a whole.
It’s not a simple picture, though, because that 4.0 MOI value is made up of neighborhoods that are experiencing different phases of the real estate cycle, and it is at the neighborhood level where buyers, sellers and agents need to focus their price expectations. The chart shows that it is now actually a buyers’ market in Montecito and Carpinteria/Summerland, where the MOI values are 10.0 and 7.3. Balancing this out are Goleta, Santa Barbara and the condo sector, which are all still experiencing a sellers’ market with MOIs of 2.6, 2.7, and 2.2 respectively. The 5-6 range is considered a balanced market, not strongly favoring buyers or sellers.
If the number of homes on the market increases (higher supply) and/or the number of interested buyers decreases (lower demand), it would show up quickly as higher MOI values, and those conditions could lead to lower prices. Or it could work the other way, with more buyers competing for fewer homes, and prices rising in response. Following MOI values over time is a great way to see where prices are headed. The current trend has been toward higher MOI values, but so far it has been changing very slowly.
Lastly, buyers will continue to flock to Santa Barbara and the neighboring communities of Montecito, Goleta, and Carpinteria from all around the globe.
Home ownership remains both desirable and valuable, an entry ticket for enjoying our unsurpassed South Coast lifestyle. Market conditions may fluctuate, but the lure of the Santa Barbara endures.
Bob Ruccione & Debbie Merlo, Broker Owners
Coast & Valley Properties