Supply spikes and slow sales indicate a buyer’s market is on the horizon
Data from the last two months suggests home prices on the West Coast have entered a new stage. While sellers have had it easy over the last few years, today houses are sitting on the market longer, and price cuts are becoming more and more common. Experts say this is a sign we’re entering the early stages of a buyer’s market.
National Housing Stats
Real estate experts say there’s no such thing as a national housing market. That makes sense when you consider that new homes for sale in New York don’t mean anything for people who live in Santa Barbara unless you are bi-coastal. Yet there are more price cuts now than a year ago in more than two-thirds of the nation’s largest metros, with the greatest increase happening on the West Coast. About 14% of all listings across the U.S. had a price cut this past June.
While inventory rises, affordability constraints drag the market down. This has caused home sales to fall dramatically across the U.S. Some markets in our fine state have seen major supply spikes, which has caused home sales to decline by double digits. Just last month, for instance, home sales were down 24% year-over-year in Seattle, 16% in San Jose, 16% in Los Angeles, and 13% in San Diego.
Those markets considered red hot over the last five years have experienced some of the biggest jumps as far as inventory goes. For instance, active real estate listings in September of this year were up by a whopping 113% year-over-year in San Jose, 81% in Denver, 47% in Seattle, 33% in San Francisco, 34% in San Diego, and 12% in Los Angeles.
The trend of rising inventory causing a decline in sales isn’t limited to only major markets. Small cities across California, as well as in Colorado, Washington, and Oregon have seen a great expanse in the amount of inventory available as well. Of the 30 markets that showed the highest spikes in active listings, 19 are in those four states.
Local Housing Stats
What does all this mean for Santa Barbara and Montecito home sellers? We can take a look at Q3 stats for Santa Barbara and Montecito to give us an idea. I’m getting more active listings today then I did a year ago, which fits with what’s going on nationally. As far as prices go, the real estate market in Santa Barbara County for everything but the luxury sector experienced a slight decline in prices in the third quarter of 2018. For now, the luxury sector is holding steady.
Active listings in Santa Barbara were up approximately 40%. Although inventory hit elevated levels, sales lagged behind expectations with a decline of slightly more than 6% in Santa Barbara. Sales volume also showed a pullback of around 2%. Properties sold for 95% of their list price, down 1% from last year.
In Montecito, inventory climbed by more than 65% while sales went down 30%+. Still, average sales prices were up due to a large number of sales in the luxury market, which hit more than $10 million. Median sales price fell 13%+. Overall, properties sold for 91% of their list price, same as a year ago.
In neighboring Los Angeles County, the share of homes on the market offering price reductions has hit a seven-year high. Leslie Appleton-Young, the chief economist for the California Association of Realtors, confirms that this means a big “shift” is taking place in LA’s real estate market. On the one hand, Appleton-Young says, the increase of the number of homes on the market gives buyers more to choose from but LA prices are so high that many home shoppers stop their search before they even begin.
“This is a sign of weakening demand relative to supply, particularly when you see multiple months of decelerating [home price appreciation],” said Daren Blomquist of ATTOM Data Solutions, a real estate data provider. Blomquist noted that data in some of the smaller markets can be volatile from month to month.
Increasing Cost of Financing
Besides the increase in inventory, the other thing that’s affecting the housing market is our rising interest rates, which are once again approaching 5%. Raising interest rates is a sign of increased confidence in the US economy, which is a good thing.
Unemployment is low, economic growth is strong, and inflation is relatively stable. All the good news regarding the economy has inspired the Federal Reserve to raise interest rates already three times this year. And more rate hikes are coming. Be prepared because central bankers have shown interest in a fourth rate hike this December, with a majority now in favor of such a move. In 2019, Fed officials expect at least three rate hikes, with at least one more in 2020. The rule is simple: When interest rates rise, monthly mortgage payments go up as well.
Experts say of the many markets where home prices hit their ceiling, the Fed’s rising rates are expected to cause prices to drop on real estate. That means, for all but the luxury market, something will have to give for people to start house hunting again. That’s because the price drops we’ll see won’t result in lower payments for home buyers. Instead, it means that today’s buyers will pay less on the principal of their mortgage and more on interest.
Regardless of where rates go, though, home prices on the West Coast have hit a wall, especially where supply is up, like here in Santa Barbara. That means if you are considering selling your Santa Barbara home, I suggest you do it now. Give me a call at +1 805.886.9378 or email me at Cristal@montecito-estate.com and I’ll happily add your home to my portfolio of fine properties. I’m also here to help you find the perfect family home in the area at the same time!