Comparing the sold prices of homes seems like a pretty straightforward task, but sometimes it can get complicated! Now that we have three full months of sales data in for 2019, we can take a look at the first quarter of this year, compare it to last year, and see what we can glean about current real estate market trends.
Is the Market Up or Down?
Table 1 and Table 2 show two different ways we can compare median home prices for January through March, the first quarter (“Q1”) of 2019 – comparing it to both 2018’s year end values and comparing it to Q1 last year. Briefly summarized, in Table 1, comparing Q1 this year with 2018’s year-end median sale prices, every segment of the South Coast real estate market is up, with a 5.7% increase for the South Coast overall. Alternatively, Table 2 compares Q1 this year to Q1 last year, and each market segment is up except the city of Santa Barbara, which is the biggest sector of the market and enough to bring down the overall median price by 7.5% compared to last year’s first quarter.
These comparisons give us conflicting information, but here’s a theory: The first three months of 2018 were overwhelmingly influenced by the debris flow, in which hundreds of Montecito homes became uninhabitable. The demand for housing immediately skyrocketed, and Santa Barbara had a significant increase in sales and prices as households hustled to relocate. It stands to reason that this year’s median price for January through March may be low compared to last year’s simply because that emergency is no longer creating an artificially high demand for Santa Barbara homes. In other words, there may be a case for not getting too fixated on this year’s overall drop in the median sale price compared to last year’s first quarter.
Generally, change in the median price is a valuable indicator of the general direction that prices are moving, which is why we so often refer to it in these real estate updates. (The median is the price in which half the homes sold for less and half sold for more.) The average price is much different than the median and a more familiar concept, but not necessarily a good indicator of the direction prices are moving. It takes relatively few high-priced homes to pull the average way up, even if lower priced neighborhoods aren’t increasing in price at all. This year, for instance, quite a few homes have sold for well over $5 million, pushing the average sale price for the South Coast up 9.2% for Q1 this year year compared to Q1 last year – a completely different picture than reflected in the 7.5% decrease in the overall median sale price recorded for the same time period.
Is the market up or down? It depends on how you look at it, but either way, the market seems stable. A higher number of home sales (8.5% more than Q1 last year), increasing median prices in most areas, and higher average prices all seem to indicate a relatively healthy market.
Is It a Sellers’ Market or Buyers’ Market?
There are definitely other features of the real estate market that are worth noting, particularly if you are making decisions about buying or selling a home. Months of inventory (MOI) measures the pace of sales or how many months it would take (theoretically) to sell every home that is currently on the market. It also reflects how “hot” or “cold” the market is – a hot market being a sellers’ market with rising prices, a scarcity of homes for sale and multiple offers on many new listings, while a cooling market is more of a buyers’ market, in which buyers have more homes to chose from and more negotiating power. This March, the South Coast MOI for houses was 3.0 months, exactly the same as March 2018. This is considered to be on the sellers’ market side of the range. In February this year, however, the MOI was at 4.6 months, more in favor of buyers than we have seen in quite some time.
The South Coast months of inventory is one thing, but it’s at the neighborhood level that this indicator becomes very important to buyers and sellers. Santa Barbara and Goleta, with MOIs of just 2.1 and 2.0 months respectively in March, are in sellers’ market territory; homes are selling quickly for the most part and sellers often have the most power in negotiations. The sectors of Carpinteria/Summerland and Montecito, conversely, have MOIs of 6.2 and 5.9 months, and are in buyers’ market conditions. A seller in these neighborhoods who wants to sell in a relatively short time will need to price their property to attract buyers who have plenty of homes to choose from.
Another trend of note this year: We are seeing quite a bit of competitive pricing, even in Goleta and Santa Barbara where inventory is low. In order to sell quickly, a number of homes have gone on the market at slightly under fair market value to ensure a sale right away. These properties almost always receive multiple offers, but the winning bids aren’t going wildly above the asking price.
Be Well Informed and Look Beyond the Headlines
Whether you are a buyer or seller, be sure to compare apples to apples when making your price decisions. Conditions are different from one neighborhood to the next, and real estate headlines and articles often focus on one facet of the market, which may not provide a realistic picture for your needs. Your Realtor is a reliable source for up-to-the-minute information about the market in the specific area that matters to you.
Sue Irwin is a full-time real estate professional with Berkshire Hathaway HomeServices California Properties, and a long-term member of the Santa Barbara Association of Realtors’ Statistical Review Committee. http://www.SueIrwinRealtor.com / 805-705-6973