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Santa Barbara Association of Realtors: Market Update, February 2013

The median home price in Santa Barbara is up over 7 percent since last month, 11 percent since December — and a whopping 16 percent since February of last year. The year-to-date median price for a single-family home in South Santa Barbara County stands at $883,000. Last year at this time, the median price for houses was $761,000. By the end of 2012, our median price was $795,000, basically unchanged from 2011’s year-end price of $790,000.

Kalia Rork
Kalia Rork

House values have been quite steady for nearly two years, hovering around $800,000. For condominiums, the story is similar. Our median price in February 2013 was $440,000, up almost 22 percent from February 2011’s $361,000.

Wow. Those are significant numbers — but is your house (or the one you want to buy) really worth that much more?

Let’s say you purchased a house in Santa Barbara last year for $700,000. Is it really worth 16 percent more now, more than $800,000? If you were thinking of buying a $500,000 condo last year but held off, would that condo now cost you more than $600,000? Price appreciation definitely affects median price, and this is true in our market. Let’s explore some of the other forces that are contributing to this steep and sudden increase in our median selling prices.

» Median price figures are affected by our small market. Line up all the sales prices from lowest to highest, pick the one in the middle and you will get the median price. Because our market is relatively small, the median price can fluctuate if a high number of expensive homes are sold during the month, or many inexpensive homes sold that month. For this reason, our year-to-date numbers are more useful than just one month simply because there is more data to compare. As the year unfolds, we will likely see less dramatic increases in year-to-date selling price.

» Sales of higher-priced homes. Buyers in the above-$1 million and luxury price ranges are more active this year. For example, there were nearly double the number of sales in Hope Ranch and Montecito in February 2013 (19) over February 2012 (10), and there are seven pending sales in Hope Ranch this February (see Table 1). (Last year, Hope Ranch averaged just over two sales per month.) On the opposite end of the price spectrum, during February 2012, 24 lucky buyers were able to buy a house under $600,000; in February 2013, only four houses under $600,000 closed escrow.

» Fewer homes listed for sale overall. A year ago, there were 519 homes for sale. This year, there are just 324 homes for sale at the end of February — that is 37.6 percent less!

» Fewer homes for sale in the lower and middle price ranges. If we exclude listings in Montecito and Hope Ranch, there were 189 homes for sale on our south coast at the end of February. Last year, buyers had 351 homes to choose from, nearly double.

» More homes for sale in the middle and higher price ranges. Sellers who have been waiting for prices to start increasing are now bringing their homes on the market. We had six closed sales over $5 million in the month of February, much higher than average.

» Low inventory. With the decrease in homes for sale and the increase in number of sales, our inventory has been cut in half. In February 2012 we had three months of inventory in all markets excluding Montecito and Hope Ranch. This year, we have just 1.5 months of inventory. An inventory of about six months is considered a balanced market. Inventory this low (see Table 1) is firmly in seller’s market territory.

Article Image
Table 2.

In addition to the mix of homes for sale and low inventory, there are still other less obvious influences on our median price.

» Investors are buying distressed homes in poor condition, fixing them up and offering them for sale in the open market. These investors usually have cash, and buyers who need a loan are unable to compete or obtain financing on these fixer houses. When these houses are rehabbed and flipped, the buyer pool is much larger and prices often go up (value is added not only because of the remodel, but also because these are now lendable properties).

» Early 2012 was painfully slow on the real estate front and showed the lowest January-February median price since 2002 (see Table 2). This makes year-over-year comparisons much more dramatic.

» Low interest rates and increased consumer confidence mean more buyers. If you were sitting on the sidelines wondering what the heck was going to happen with the economy and political policy before you bought a home, you might have gotten tired of waiting for a resolution. Despite the budget crisis and continuing drama, people may be concluding that the United States will simply keep plugging along and not suddenly drop into unfathomable economic chaos. “It looks like things are going to be okay. I think I’ll buy a house while prices are still low and money is cheap!” When potential home buyers are feeling good enough about the economy, when mortgage interest rates are low, and when prices are rising, buying a house looks like a really good idea.

So, yes, our median price is up, way up, in just a couple of months. Despite this dramatic jump, these first couple of months this year, we predict there will be an increase in inventory as the year progresses and a slightly subdued buyer frenzy, so this increase will taper off as the year unfolds. We predicted a few months ago that Santa Barbara would see fairly steep median price increases based on what we were seeing on the street and on what our neighboring cities were reporting. Our area lagged behind most of the rest of the state in median price increase over the last few months; we are now playing catch up.

California Association of Realtors chief economist Leslie Appleton-Young predicts “double-digit price increases in 2013” for Santa Barbara, and we’ve already seen this in the first two months of this year. As these various influences push and pull on the real estate market, you may see median price dip and climb during the year — but the combination of forces is definitely pushing home prices up.

— Kalia Rork is a Realtor at Prudential California Realty in Santa Barbara. She may be reached at 805.965.1098 or .(JavaScript must be enabled to view this email address), and by clicking here.

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