September continued to be a busy month in Santa Barbara real estate, with 98 homes and 61 condos closing escrow, and a similar number of pending sales set to close in October (109 homes and 53 condos). Continuing a trend we have seen most of the year, condos are out-performing houses with regard to median price; in fact the median price of sold homes for the year is $1,113,500, down 5.2% compared to 2014, whereas the median price of sold condos is up 4.2% at $585,000.
Where our market has been very strong all year is in number of sales: 11.4% more homes have sold this year compared to last year, and condos are really cooking along with a 41% increase in sold units over 2014. A number of factors are in play with these increases, including the fact that condominiums are generally more affordable than houses. And not to be forgotten, mortgage interest rates are still at record lows (often under 4%), making any price range much more affordable for borrowers than pre-recession years when mortgages were in the 5.5% to 6.5% range. The Fed didn’t raise the bank-to-bank rate in September, and international conditions such as China’s economy are having an effect of keeping rates low as well. So for now, financing is still favorable for homebuyers.
Segments of our market are performing differently right now, which is good to know if you are planning on buying or selling in the immediate future. Most notably, the Carpinteria/Summerland region has had a busy year, with 47% more home sales than in 2014. All other areas also show some increase in the number of sales except Montecito, which has had 20% fewer sales this year compared to last year. The silver lining for Montecito is that home prices are still up compared to a year ago, which is not the case in other market segments on the South Coast.
This brings me to the Months of Inventory (MOI) tool. The MOI measures how many months it would take for all listings (the inventory) to be completely sold out if no new properties came on the market. Even though this would never actually happen, MOI is still a great way to take a reading of the real estate market, because it indicates how “hot” different parts of the market are. Any value over 6 months of inventory generally indicates a strong buyers’ market, with homes taking relatively long to sell and buyers generally being in a stronger negotiating position than sellers. Montecito, with 7.4 MOI, is a good example. Conversely, a value below 3 MOI is considered a sellers’ market, in which homes sell relatively fast and sellers typically have a stronger negotiating position. When you get to a value like 1.2 MOI as Goleta had in September, that is a smoking hot market, with properties selling very quickly. Overall, the market for houses on the South Coast had 3.1 months of inventory in September, which is trending toward a balanced market, with neither buyers nor sellers having more negotiating power than the other. Note that even in a strong sellers’ market like Goleta had in September, the seller of an overpriced listing is not going to be in a position of power when an offer is written…if one is written at all. Conversely, a competitively priced home will still sell quickly in a buyers’ market, perhaps with multiple offers. Buyers today are very price conscious and well educated about home values.
Looking ahead this year, the wild card we are just beginning to experience is the new set of “TRID” regulations for mortgage lending that went into effect on October 3rd. TRID, which is short for TILA / RESPA Integrated Disclosure Rule (if that helps), brings a number of changes for lenders, escrow companies, buyers and sellers; unless the transaction happens to be all cash. Among the changes are two additional 3-day review periods for borrowers – one before they can proceed to have their loan processed, and another before they can sign their loan documents. Escrow companies will be adjusting to the new lending rules and to a new format for the settlement statement that is used when closing the escrow. Maybe it will all go smoothly…we will know more in a month or so. It would be reasonable to expect that the number of real estate sales could dip the last part of this year, in part because of the TRID regulations making escrows take a bit longer, and in part because sales tend to slow down – and prices tend to soften – from October through the holidays. We will keep you posted!