Santa Barbara Real Estate Market-Still Robust!

The real estate market in the Santa Barbara area is still moving forward.  Comparing this October to last year’s, we had 52% more closed sales of single family residences and planned unit development units (all to be referred to as houses).   Looking at our year-to-date total, we have surpassed the number of sales every year in the past 11 years except 2004, which had just a few more sales than we have this year.

Our condos have also been flying off the shelf.  There were over 64% more sales this October than there were last October.  Overall, the number of condo sales is up about 45% over last year. 

Our year to date median price of $799,000 is basically the same as it was last year.  We are seeing the bulk of our sales occurring under this price, but we are still seeing high-end properties continue to sell.  Last year in October, only six properties closed escrow over $2,000,000 and none over $4,000,000.  This past month, we had eight properties close escrow between $2,000,000 and $4,000,000 and six properties over $4,000,000 which represents more than 13% of the monthly sales.    

The year to date median for condos is $400,000 but this is almost 4% less than last year’s median.   This can partially be attributed to the fact that almost 40% of the condos that sold this year were either short sales or bank owned (also known as “distressed”), and those types of properties tend to be sold a bit less than market value. 

At the beginning of the year, it was easy for first buyers to find affordable properties.  There were quite a few houses under $500,000 back in January; now there are four available, most with two bedrooms and one bath.   It is interesting to see that 15 houses did close escrow this month under $500,000, which shows that they the potential to buy in that range is still possible. 

It is important to note that over 1/3 of the houses sold above their list price.   There are still multiple offer situations in every price range.   Some properties have had more than 10 offers.  I just participated in a multiple offer situation on a well-priced house and there were 16 offers with the assumption that the price went well over the list price.  There is still pent up demand for buying.

The percentage of distressed houses that closed escrow this month was around 28%.  As of this writing, we have a total of 29 distressed houses in the Multiple Listing Service (MLS) with 13 of them in escrow.  For condos, the percentage was 39% of the closed escrows were distressed.  Currently, there are a total of 9 distressed condos in the MLS and all of them are in escrow.    It appears that the number of available distressed properties is shrinking in numbers. 

One of our biggest issues is the lack of inventory.  As of this writing, we have 42 houses that are priced under the current median of $799,000.  That represents just 11% of our available inventory of houses.   The median price of the houses in escrow is $815,000.   Once these properties close escrow, we will most probably see an upswing in our median price.  As Table 1 indicates, overall we only have 3.2 months of inventory, which means it would take that long to sell the current inventory.  Note that in the city of Santa Barbara and the area we refer to as Goleta (comprises most of “Noleta” and the city of Goleta) there is less than 2 months of inventory.  Higher end properties usually take longer to sell, but 5.9 months of inventory for Montecito actually represents a balanced market.  The number of sales for both Carp/Summerland and Hope Ranch are statistically too low to have an accurate basis for months of inventory. 

Based on the above information, here is a plea to our financial institutions, “If there really is a Shadow Inventory, please, please, please release them onto the market!”

Even with all of the good news, there are a few concerns that could cause turmoil in the real estate market in 2013.  One of those concerns is the extension to the Mortgage Forgiveness Debt Relief Act of 2007.  This Act is to expire on December 31, 2012 and at this point it does not look as if it will be extended this year.   The purpose of the Act is to prevent families who hold distressed properties from facing a hefty tax bill for trying to modify their mortgage or to seek a short sale through their lender. Even those facing foreclosure could find themselves forced to pay a “foreclosure tax” if Congress doesn’t act.

“If Congress does extend the law for federal income taxes, California is poised to follow suit for state taxes,” said Alex Creel, senior vice president of governmental affairs at the California Association of Realtors.    "Clearly nothing will happen on the extension this year," he said. Even if Congress waits until well into 2013 or even 2014 to extend the bill, it could easily make the bill retroactive to Jan. 1, 2013, so no one would be left out in the cold.  Admittedly that would put people in an awkward spot if they're trying to do transactions in 2013 and Congress hasn't acted," he said. "They would be out there wondering if the extender would go through."

The National Association of Realtors has a campaign to rally Realtors regarding this issue.  If you would like to have your voice heard regarding this issue, go to their website at www.realtor.org. 

The other concern is in regards to the Mortgage Interest Deduction (MID).  There is a possibility that this deduction may be totally removed as a write-off or else it may be modified.  Many pundits doubt that it will be totally removed.   In regards to modifying, some of the more popular proposals include eliminating the deduction entirely for second homes; converting the present MID to a 12 percent tax credit; reducing the $1 million ceiling to $500,000; and dropping the deduction in favor of lower tax rates.  There is still a possibility that it will not be modified at all.

Progress has been made in bringing stability to the housing market.  Any changes to the MID could place the housing market and the broader economy under stress and destroy wealth accumulation that is the foundation for a healthy middle class. 

Our market is doing well and buyers are out in full force.  With such a robust market, whether you are a buyer or a seller, you would be wise to enlist the aid of a knowledgeable Realtor to help you through the process.   Let’s think positively that the Mortgage Forgiveness Act gets extended and, if there are modifications to the MID, it does not adversely affect most homeowners.