For the greater Santa Barbara Real Estate area including Carpinteria Real Estate/Summerland Real Estate, Montecito Real Estate, Hope Ranch Real Estateand Goleta Real Estate single family residence sales trailed 08 sales for most of the year until the end of November but by the end of the year sales had moved ahead of the previous year by roughly 7% finishing the year with around 830 sales. Condo sales, on the other hand after starting the year way behind the previous years numbers surged forward and by the end of June had eclipsed the previous years sales significantly finishing the year about 16% ahead of 08.
The median sales price, which is derived by ordering sales from the highest priced property to the lowest and then going to the middle of the list however was a whole different story. Single family residences went from a median sales price of approximately $1,050,000 in 08 down to about $850,000 in 09 and when you remove Montecito and Hope Ranch from the equation the median sales price for 09 was roughly $750,000 for the year down from about $870,000 in 08. This drop in the median sales price for the whole area means that from 07 to 08 single family residence median sales prices fell 12.5% and from 08 to 09 they fell 19% which means from 07 to 09 there was a decline of about 30% in the median sales price for the area.
Condo sales prices were not affected as severely as Single Family residence prices in 09 going from about a $535,000 median in 08 down to about a $465,000 median for 09. This translated into a 13% decline for the year. In 07 the median sales price for condos was about $630,000 which means from 07 to 08 there was a decline of 15% and from 07 to 09 there was a drop of roughly 26% in the median sales price.
This decline in the median sales price for both single family residences and condos puts it right around the median sales price for 2003 which is comparable to the rest of the country having declined at the same rate and to the same point in most of the United States. In 03 the country and the world for that matter was awash in money for home loans. It was at that time that financial brokerages along with Fanny Mae and Freddie Mac began packaging loans and selling them to investors in derivatives and collateralized debt obligations. The effect of these packages along with looser underwriting standards for loans spurred a 20% rise in the median sales price from 03 to 04 and then a 25% rise from 04 to 05. From 05 to 07 the median sales price remained stable and then in 08 those derivatives and collateralized debt obligations triggered by the looser underwriting standards began to unravel causing the decline in the median sales price almost everywhere from 07 to 08 and a further decline on into 09.
For about the last six months of 09 prices began to stabilize and there has been some upward pressure on prices particularly in the condo market. There are three motivating factors in causing the upward price pressure. First, is a general decline in the number of properties available for purchase in the sub-million dollar range. Second, is the $729,000 maximum FHA loan limit which is evidenced by the $850,000 median sales price and third is the first time buyers income tax credit which has brought a lot of people into the marketplace.
If things remain as they are right now, which is a big if, it looks like sales will continue to increase and will eventually cause prices to rise. This is evidenced by the significant numbers of properties that have entered and remain in escrow at this time. But, there are a couple of elements which are lurking out there. First, there is a considerable number of what are called pre-foreclosure properties. The owners of these properties have either fallen behind in their payments or have stopped paying their mortgages altogether. Also, there are a lot of variable rate mortgages which are going to re-set in March with a number of these loans in the million dollar plus range. Whether these pre-foreclosure properties turn into foreclosures and whether its a flood or trickle will have a great significance on the marketplace.
The second element that will affect prices is interest rates. At this point interest rates remain close to an all time low which has allowed Real Estate sales to continue moving forward. With the government continuing to run up huge deficits it is only a matter of time before interest rates go up. When interest rates go up we will have a whole different landscape to deal with. Peoples ability to qualify for higher loans will be diminished if rates increase which should cause prices to decline further and could mean a decline in the numbers of sales.
Two of the most important numbers that determine where the market is going is the numbers of sales compared to the numbers of properties that went into escrow. When the numbers of properties going into escrow is higher than the numbers of sales then the market is picking up and conversely if the there are fewer homes going into escrow than are sold then the market is slowing.
For 09 the numbers of single family home escrows opened was about 120 above the numbers of sales and for condos the opened escrows was almost 100 over the numbers of sales. Both of these numbers are significantly ahead of the numbers posted in 08 which means there is a lot more activity in the marketplace in 09 compared to the previous year meaning that there is still a great deal of vitality in the market.
A lot of this increase in activity we experienced is the increase in the number of what are called short sales. This is a situation in which the seller owes more on the property than the property is worth. A short sale generally takes longer because the lending institution or investor can take a great deal of time in deciding whether to accept the reduced price as full compensation for the debt. This is one of the big reasons that there were so many properties that remained in escrow at the end of the year.
Going into 2010 theres still a lot of strength in the Real Estate market. Sales continue to grow and there are a substantial number of properties that entered escrow in 09 that will sooner or later become completed sales. The number of homes available for sale has continued to decline but a lot of that is seasonal with a lot of people taking their properties off the market during the holidays. The numbers of homes for sale will grow as we move into the year and listings begin to pick up at the end of February. But, there are still a lot of short sales and bank owned properties on the market. Somewhere between 15% and 20% of the available single family residences and condos are either short sales or foreclosures, what are called REOs (Real Estate Owned) that make up the available properties for sale in the area. Until these properties are gone prices will remain roughly where they are right now with some upward pressure particularly with condos.
Gary Woods