August seemed, on a first look at the numbers, to show a continuation of the strong summer in our local real estate market. However, if you look into the August numbers, as well as at numbers so far in September, things are not looking so good. Other than the entry level market and the condo market, sales have slowed again. The condo market, which started to assert itself in last two months is continuing to show new strength in number of sales. What we now have is a market that is strong in number of sales and still weak in both median & average prices. If the slowdown in last 30 days continues and proves to be more than just seasonality, then it will be troublesome. The market above $800,000 is dramatically different from the market below that price. So, whether the market is doing well depends on what you are looking at. Don't you just love statistics!
By the way, I believe that there is an answer available to us to turn both our real estate market and the economy around, but I can only wish that those who could enact legislation would act. See "Political Risks" below.
This months newsletter will focus on:
1. Analysis of Closed and Pending sales for August as well as for September 1-19.
2. Eight months statistics detailing the makeup of the local Starter Home market.
3. A more detailed view into the makeup of sales in the Mid-Range market for last six months.
4. A detailed breakdown of Pending Sales showing the orderliness of our market.
5. Investment property analysis.
6. Continuing analysis of condo market which has really picked up.
7. An analysis of how each segment of the market is doing. We have to remember that we do not correctly answer the question of "How is the Market Doing" if we only give generalized overall answers.
Current Statistical Data
We continue to have good numbers through August in the entry level homes and condo markets. The rest of the market is not doing as well. As I cautioned that we might last month, we now seem to be starting a trend towards weakness. I would expect a slowing from the strong summer but was hoping that it would not be this soon. Total current active listings for single family homes fell slightly to 564 from 574 and 565 previously. Total current active condo listings fell again to 139 from 153 & 170 previously. Last year at this time there were 638 homes and 160 condos listed and active. Current listings for homes and condos number only 87% as many as last year while sales continue to be stronger than 2010. We now have more year to date sales in 2011 than in any year since 2007 and are essentially equivalent to 2006. Condos still have a way to go to match previous year to date figures but they are starting to catch up. Using classical current active listings and closed sales and/or pending sales we would say that the overall market has between 4.51-5.25 months inventory, which is a good number, but to me this is a lagging indicator. The true pulse of the market is the most current pending information so we are coming through a strong patch but the future is much more uncertain.
Closed Sales - Closed sales came in at 96 for homes in August which compares well to the 94, 91 & 90 for the previous three months. These closed sales came in at 93.92% of List Price and 87.47% of Original List price which is essentially what we have seen recently. The median sales price dropped significantly to $734,500 and much will be made of that but if you look over the last year we have been bouncing between a monthly low of $727,000 in March 2011 to a high of $880,000 in June 2011. This is how it is with monthly data. Of course, as I do every month, we will continue to follow the relative strength of each part of the market which will tell us why we are seeing the changes in median numbers. The decrease since June is due to more lower priced homes selling compared to higher end homes. The Average Sold Price came in at $1,266,696 in August compared to$1,226,920 in July and $1,237,040 & $1,226,504 in most recent previous months. I will be provided a detailed analysis of Average Sold Prices as a market indicator again at the end of the year. Please review last month's newsletter for the data thru August 2011.
Market Share Analysis: Here is a look into the number of sales and percentages broken into price ranges:
$ Range Sept. 1-19 August July June May April
Under $800k
59%(27) 56%(54) 48%(45) 38% (34) 51% (46) 44% (30)
Under $1M
67%(31) 70%(67) 58%(55) 61% (54) 60% (54) 57% (39)
$1M-2M
22%(10) 18%(17) 31%(29) 28% (25) 22% (20) 28% (19)
Over $2M
11%( 5) 13%(12) 11% (10) 11% (10) 18%(16) 16% (13)
Total Sales
46 96 94 89 90 68
The drop in total closed sales so far in September has been within all price ranges. Time will tell if this is a change in market sales number strength or just a short term aberration. Of course we also have to start factoring in that we are moving into the fall and holiday season where we would expect to see decreasing sales numbers. August and September numbers are showing continuation of lower market share for all levels above entry level.
Low End Sales Data (Under $800,000) - Entry level continue to maintain a strong presence in our market. Below are the last eight months activity which creates an average of 41.25 homes sold per month for that period. Although the number is decreasing from the peak last month, it certainly looks like the trend will continue moving forward. We currently have 148 active listings in this price range compared to 156, 138, 153 & 140 the last four months. No matter how you look at it there is 3.5-4 months standing inventory. Nothing has changed in this market range in terms of number of listings, percentage of short sales and REO's and sales activity. If anything, prices continue to soften slightly and possibly volume is decreasing a bit. See below under "Political Risks" for my answer to the problem of debt greater than equity which continues to be the 300 lb. gorilla in the room.
AUGUST 20-SEPTEMBER 19 - Sold Properties under $800,000
1-15 days 16-30 31-60 61-90 91-180 180+ TOTAL #of prop:
15 7 8 3 8 4 45
# short sale
5 - 3 1 - 1 10
#REO
3 3 2 1 3 1 13
# w/$ chg
- - 4 2 8 4 18
JULY 20-AUGUST19 - Sold Properties under $800,000
1-15 days 16-30 31-60 61-90 91-180 180+ TOTAL
#of prop:
13 6 9 11 12 5 56
# short sales
1 1 2 3 3 2 12
#REO
1 1 2 3 5 1 13
# w/
$ chg
- - 7 10 12 4 33
JAN 19-JULY 20 - Sold Properties under $800,000
1-15 days 16-30 31-60 61-90 91-180 180+ TOTAL
#of props:
36 48 35 47 27 285
# short sales
18 3 11 8 9 16 65
# REO
22 12 6 14 9 1 64
# w/$ chg
1 6 29 29 45 22 132
The data shows that:
1. As we now see month after month, bank-owned and short sale properties continue to make up around 45% of the sales in this part of the market. The 6.25% loss in value this year in this part of market is due to this continuing problem.
2. In no other part of the local market do we see such a high percentage (45%) of properties go into escrow within 30 days without any price changes needed. You best be nimble as a buyer in this price range.
3. Price changes happen much quicker here also.
Mid Range Sales Data - The slowdown in this price range continues. Only 28 properties closed in last 30 days compared to 24 last month and 44 the month before. June and July numbers looked great but there has been no follow through. This market has to wake up for our overall numbers to improve. We are starting to see some short sales in this range also with at least 6 in last two months. Although the numbers are changing in last month with many more properties selling quickly, part of that is due to properties relisting with more aggressive pricing and then selling quickly. There are currently 178 active properties in this price range. We need at least 30 sales a month to come into balance and more to get this market moving.
AUGUST 20-SEPTEMBER 19 - Sold Properties $800,000-$1,600,000
1-15 days 16-30 31-60 61-90 91-180 +180 days TOTAL
#of prop:
10 2 6 3 5 2 28
# w/$ chg
- - 1 2 3 2 12
MARCH 20-AUGUST 19 - Sold Properties $800,000-$1,600,000
1-15 days 16-30 31-60 61-90 91-180 +180 days TOTAL
#of prop:
42 12 19 13 39 20 145
# w/$ chg
- 2 10 6 30 18 66
Pending Sales - There were 111 new homes that went into escrow (were pending sales) in August compared to 96 & 113 the previous two months. The median List Price for the new pending sales was $799K & average List Price was $1,220,881. This speaks to market strength. There are only 46 new pending sales for September through 9/19 so, again, we are seeing a potential slowdown. The median list price for the sales so far in September is $749K which shows a continuation of low price dominance.
Total pending sales now total 173 compared to 176, 190 & 191 for previous four months. It looks like we are clearing pending sales pretty well, but the best way is to see how long the current pending sales have been pending. The following graph clearly shows this.
TOTAL PENDING SALES BY MONTH INTO ESCROW:
Oct-Feb Mar. Apr. May June July Aug. Sept. TOTAL
>$500K
1 2 3 2 1 4 11 8 32
$500-600K
1 - - 1 1 2 13 11 29
$600-700K
1 - - 2 - 2 7 5 17
$700-800K
1 - - 1 - 3 5 12 22
$800K-1MM
- - 1 1 - 2 13 5 22
$1-1.6MM
- - - 1 1 4 11 12 29
$1.6-3.0MM
1 - 1 - 3 2 7 2 16
<$3MM
- - - 1 - 1 1 3 6
TOTAL
5 2 5 9 6 20 68 58 173
Only 27 of the total pending sales are laggards by being pending more than two months. This shows an orderly market. The longest outstanding pending sale is 6693 Del Playa which went pending in October 2010.
Additional pending sales information:
PENDING SALES - Sept. 19 under $800K $800-1M $1-2MM over $2M
Current total pending (173)
100 22 36 15
Avg. monthly sales (last 5 mths)
41.8 12.0 22.0 12.2
# months inventory over 5 mths
2.39 1.83 1.64 1.23
# months inventory(Aug. figures)
2.32 2.88 1.76 1.05
PENDING SALES - Aug. 19
under $800K $800-1M $1-2MM over $2M
Current total pending (176)
94 30 39 13
Avg. monthly sales (last 5 mths)
40.6 10.4 22.2 12.4
# months inventory over 5 mths
2.32 2.88 1.76 1.05
# months inventory (July figures)
2.83 1.67 1.68 2.6
This information shows that all price ranges are keeping relatively even month's inventory and again shows an orderly market for pending properties closing in a timely fashion. Based on the above we should continue to see decent if not strong closing numbers for the next couple months but, if we do not get more properties pending, we will see an early onset of the normal slowdown in closed sales as we approach the holidays.
SUMMARY (for single family homes) - Santa Barbara has had a good summer sales season. The entry level market is doing well, the properties that get into escrow are mostly closing. We have a fall-through ratio of around 11% or maybe a bit higher. It is difficult to know how much the renewed fears of a new recession and continuing weak economy, which has wiped out upwards to 20% of stock market values recently, are affecting our sales of homes, but something is definitely happening. Stay tuned for next month's update which should be very telling.
Investment Properties - There are currently 46 active properties up from 44 last month. Some nice larger properties have hit the market this month and one has already gone pending. We now have 14 pending properties with 8 of these going into escrow since 8/15/11. Strengthening rents and amazing interest rates are fueling this market. We need more inventory. Six of the lowest priced pending sales are short sales.
Condo market - The condo market continues its new found strength in sale numbers with 38 closed sales in August compared to 28 & 23 previously and with 43 pending sales compared to 48 & 39 previously. As expected the median price dropped back to $436,449 and this will fall again next month because the new pending sales had a median list price of $399,500. The pending numbers so far in September are not quite as strong but the median list prices of the pendings is $489K. The total active condos fell to 139 in August from 153 & 150 previously probably due to not many owners wanting to try to sell at current prices unless they need to or want to move up to another well priced property. The market is continuing to do well.
How Is The Market Doing?
HOW IS THE MARKET DOING? - I am asked this question all the time. We actually have many markets. Here is a quick synopsis of the various markets as I see them.
Entry Level Properties: (under $800,000) - There are currently 148 active listings which is right on the average for last four months. Sales are steady. There is four months inventory at this time at most. Currently this portion of the market accounts for over 50% of all sales. Market is somewhat stable but Average Sales Price has fallen 6.25% through August for the year. This is the most vibrant part of our local market in terms of number of sales.
Mid Level Properties ($800,000 to $1,600,000) - This part of the market is now weakening. We are again below the monthly numbers needed to bring this market into balance. There are currently 178 active listings, down from 191 & 198 previously. Average Sale Price has actually increased by 2.51% through August this year.
High End Properties ($1,600,000 to $3,000,000) - We had 9 sales in August down from 12 and 10 previously and ONLY 3 so far in September. There are currently 126 active listings up from 118 and 125 previously. We do have a total of 16 pending sales currently. We have way to few sales and way to much inventory. Average Sale Price has fallen 1.59% year to date. Buyers still rule.
Luxury Market (over $3,000,000) - There were 6 sales in August with 6 & 3 previously and 4 sales so far in September. There are 144 current listings compared to 148, 148 & 145 previously. There is a total of 6 current pending properties. Average Sale Price has fallen 19.69% in last year. The numbers speak for themselves.
POLITICAL RISKS - The biggest risk is that we continue to do nothing. We have seen that any stimulus that might be passable will be too small to make a difference. Cutting costs more and more is like bleeding a patient in the middle ages. All it does is weaken us further. I believe that the answer to improvement in our economy has to come from generating strength in sales of single family homes and condos. How? Easy! Lender/investors are currently not motivated to work with homeowners in modifying loans because the investor has a loan that is insured by Freddie or Fannie. He can pretend to try to help, then force the sale and be made whole. We need a program that that changes this and saves the government (you and me) money so that Congress will support it. My suggestion is that Congress create a law that says that the lender/investor must offer the underwater homeowner a loan at or slightly above current market value at current rates for 7-10 years or else pay a penalty of 10% of the cash received when loan is paid off through short sale or foreclosure and bank sale. The lender/investor will not favor this so how do you make it so lobbyists can not rule? You offer the lender/investor a portion of the increase in value above the modified loan amount. This creates less loss at time of loan payoff which means the government (you and me) pays out less which creates large savings. Since the decision makers can proudly point out how much money they would save us though enactment of this program, they will not be swayed by the lobbyists. The lender/investor does not lose other than getting continued interest on their investment instead of getting paid off early. Everyone else wins. Homeowners win, neighborhoods win, values start to turn around, the economy starts going in the right direction and the decision makers (Congress) look good. THE KEY IS TO NOT REQUIRE THAT THE HOMEOWNER HAS TO QUALIFY FOR THE MODIFIED LOAN. Just let him have it. If he can pay it then he can stay in the home. If not, then the lender/investor gets to do what they do now anyway and the resulting sales price will be higher because we will break the back of this negative cycle. If you weigh the plan down with governmental restrictions you will kill it. Keep it simple. Finally, for the lender/investors who do not have insurance and/or are subordinate loans, by offering them a portion of the increase in value they end up with a better deal also.
By Don Elconin
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