Monday, May 21 , 2018, 3:57 pm | Mostly Cloudy 68º


Craig Allen: Local Real Estate Market Heating Up, But Have We Seen the Bottom?

Only three things matter when considering real estate: location, location, location! Real estate is local, meaning that although we track trends on a national, state and regional basis, the conditions of the local market supersede the larger regional, state and national conditions.

In recent months, our local real estate market has been heating up, especially within the “lower” price-points — homes below $1.5 million. Cash buyers seem to be prevalent, and often properties enter escrow within days of listing. But have we truly seen a bottom in the local real estate market, or is this just a short-term bounce in a larger bear market?

Steve Epstein
Steve Epstein

Last week I had an in-depth discussion with one of the most experienced real estate professionals in Santa Barbara — Steve Epstein of Keller Williams — to get a sense of current conditions and opportunities for investors, and for those looking to purchase a home. Epstein’s insights were both interesting and surprising, especially given the relatively poor regional, state and national real estate trends, and the economic situation overall. My question-and-answer exchange with him provides a unique, expert perspective on the current state of the local real estate market, and the possible future trends we can expect.

Craig Allen: What is the current state of the local real estate market — inventory, challenges, demand, investor versus individual, etc.?

Steve Epstein: Our inventory is at about half of the recent high; we have approximately 350 units to sell on the South Coast today, versus roughly 700 units at the high. Most well-priced properties (especially those under $1 million) go under contract within two to three days of listing, sometimes with a dozen or more offers, and there can be very active bidding wars. Prices have not yet started to rise, but if the current situation persists, they will. Individual buyers are out there competing with investors and investor groups who have figured out that there is a chance we are past the bottom of the market and there could be some gain to be realized here. Noncash buyers are getting regularly beat out by all-cash buyers. There is a ton of cash in the market!

CA: Are financing options available and what are they?

SE: Most of the financing options that we have always had are still in place; the main difference is that the banks are looking much more closely at the borrowers and the properties. In the past, lenders looked more to the borrower and much less at the property, but since they have been reminded that there is a chance they may own the property themselves, they seem to be pickier about the actual condition of the properties. The most heavily scrutinized are some of the government loan programs like FHA financing. There are a host of loan programs out there, and the lenders want to lend but they have a new business model this time: They want the borrower to actually be able to repay the loan!

CA: What should noncash buyers know in the sub $1.5 million price range?

SE: All buyers need to have the 3 “Fs:”

» Be first

» Be fast

» Offer full price

Having been through a few of these cycles, I know I have to push buyers, but I really hate ever seeming like a pushy Realtor. The bottom line is that if buyers see a property they like, that works for them, they really need to jump. Buyers who require a loan should take the extra steps to get pre-approved, not just pre-qualified, and this must be from a local lender — no out-of-town lenders; they are a recipe for a failed transaction. This is the only way noncash buyers will have a chance of competing with cash buyers. All buyers really need to focus on the market so they are comfortable making a decisive move when they see a property that it is an appropriate deal.

CA: What will be the impact of new construction, such as the new Victoria Street project, Alma del Pueblo?

SE: Virtually no impact whatsoever on inventory or price.

CA: Where do you see prices in one year, three years, five years?

SE: If we trend the way we have begun trending, prices will — slowly — start to move back up. I personally do not predict any meteoric rise in prices over the next two to three years — nothing like we saw in the mid-1990s when the recovery immediately eclipsed the highs of the late 1980s.

Epstein’s views on the local market closely match my own. While it is not clear that we have reached a bottom, at least in terms of overall price or market activity, it is clear that buyers, and especially all-cash buyers, are actively seeking local properties in the sub-$1.5 million range. With the fiscal cliff issues pressuring the economy, it is at least possible that the U.S. economy will re-enter a recession early next year (a double-dip recession). If this occurs, it will no doubt have a negative impact on the real estate market overall.

However, Santa Barbara’s real estate market, like all real estate markets, is local. There are certainly numerous all-cash buyers looking to purchase properties in our community who do not seem to be very concerned with the overall real estate market or the economic situation. If demand from these buyers continues, as Epstein suggests, we could certainly see prices begin to rebound in the not too distant future.

Craig Allen, CFA, CFP, CIMA, is president of Montecito Private Asset Management LLC and founder of Dump Your Debt. He has been managing assets for foundations, corporations and high-net worth individuals for more than 20 years and is a Chartered Financial Analyst (CFA charter holder), a Certified Financial Planner (CFP) and holds the Certified Investment Management Analyst (CIMA) certification. He blogs at Finance With Craig Allen and can be contacted at .(JavaScript must be enabled to view this email address) or 805.898.1400. Click here for previous Craig Allen columns. Follow Craig on Twitter: @MPAMCraig.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through PayPal below, or click here for information on recurring credit-card payments.

Thank you for your vital support.

Become a Supporter

Enter your email
Select your membership level

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >