SBAOR: First Quarter 2022 Real Estate Market Update

from House & Home: April 24, 2022

Santa Barbara County Sales

Santa Barbara Association of Realtors First Quarter 2022 Real Estate Market Update

By Sue Irwin, Realtor

So here we are, two years after the country held its breath and waited out the first phase of the pandemic — lockdowns, economic slowdown, personal losses, societal upheavals and all. During that spring season two years ago, a relatively robust winter real estate market came to a near standstill, and we were trying to figure out how in the world to sell houses without spending time in person with our clients and agents, or at least how to be with them as little as possible. Everyone adapted, and the importance of home took front and center in our communities. With that, the real estate market took off like crazy.

Have things slowed down at all since then? The answer is both yes and no. For this year’s first quarter (Q1), the number of closed escrows is down 21% for houses and 25% for condos compared to last year’s record shattering performance, but the drop in sales is actually on par with a drop in the number of listings that have come on the market. If there were more properties to buy, there would be more sales. And to add some perspective, this year we are still well above the number of sales in Q1 for all five years previous to 2021. So far, it’s a busy year.

Given there were fewer sales than last year, you’d think the pace of sales might have slowed, but it hasn’t. Buyers, sellers and agents are experiencing first hand how quickly sales go from just listed to pending to closed. The pace of sales can also be numerically measured as “months of inventory” (MOI). This is a theoretical number of months it would take to sell all the properties on the market if sales continued at the same rate and nothing new came on the market. The bottom of the chart’s “Months of Inventory” column shows 0.6 months of inventory for homes and condos combined throughout the South Coast in Q1. That’s a little over half a month. Even with fewer sales this year, the pace of sales is even faster than last year, which came in at 0.7 MOI for combined homes and condos.

If you are out there trying to purchase a home or condo anywhere on the South Coast, you know first hand that you have to move quickly to get your offers in when a property you like comes on the market. There’s no time to hem and haw.

The MOI numbers also reveal how strong of a buyers market or sellers market is in play, with a balanced market being in the 3.0 to 4.0 months of inventory range. The lower the number, the stronger the sellers market, and the higher the number, the strong the market favors buyers. On our March 2022 chart, there’s something we’ve never seen before: an MOI number of 0.1! This is for the condominium market, so theoretically, at the end of March, if no new condos came on the market, then the condos available for sale would have all been under contract in 1/10th of a month — 3 days. The condo market is where entry level home buyers can still get into a property for under $1 million, so that is putting upward pressure on condo prices and they are selling as soon as they come on the market. This is also true for most homes as well, but the condo market is selling particularly quickly, followed closely by the market for houses in Goleta and Santa Barbara. No area of the South Coast has a build-up of housing inventory or is getting close to buyers market conditions.

Snapshot of sales and median prices, Q1 2022 vs Q1 2021:

NUMBER OF HOMES SOLD is down 21.3% (Number of new listings is down 21.4%) Q1 2022 - 262 homes sold vs. Q1 2021 - 333 homes sold PRICE OF HOMES ON THE SOUTH COAST is up 12.6% Q1 2022 - Median price $2,251,000 vs. Q1 2021 - Median price $2,000,000

NUMBER OF CONDOS SOLD is down 25% (Number of new listings is down 20.5%) 2022 - 111 condos sold vs. Q1 2021 - 148 condos sold

The MEDIAN PRICE OF CONDOS ON THE SOUTH COAST is up 17.3% Q1 2022 - Median price $900,000 vs. Q1 2021 - Median price $767,500

Of note:

— The Goleta home sales market was particularly active in Q1. The number of sales is about equal to last year, and the median price of sold homes has gone from $1,186,000 in 2021 to $1,445,000 this year, an increase of 21.8% compared to the first quarter of 2021.

— The number of home sales in Santa Barbara is down, but the median price has risen from $1,872,500 in

Q1 of 2021 to $2,300,000 in 2022 (up 22.8%)

— Although the number of sales in Montecito is down significantly this year compared to last year, the median price for sold homes in Montecito this quarter was an astounding $8,000,000, up from $5,042,500 in Q1 2021 (up 58.6%!)

Sellers are still in the driver’s seat, and buyers still need to put their best offer forward, often in multiple offer situations, in order to purchase a property.

Did you know?

If you haven’t bought or sold a home recently, there are two practices that have become common when it comes to listing homes and making offers.

Buyer letters: Buyers often submit personal letters with their offers, introducing themselves to the sellers and saying how much they love the home. While these letters can serve the buyers well if they strike the right chord, they are a legal issue for sellers when there are multiple offers coming in. Both buyers and sellers now sign a Fair Housing Discrimination Advisory, which lists “protected classes/characteristics”. By reviewing a set of letters from multiple buyers who provide personal information about themselves, sellers (or landlords and others) could possibly make decisions that appear to be discriminatory, whether they know it or not. In order to minimize such occurrences, the standard California Residential Listing Agreement now includes default language to the effect that the seller will not review buyer letters. (Sellers can, however, decide to check a box saying they want to review such letters.) The list of potential ways a person can discriminate is long, including race, color, religion, sex and gender categories and marital/family status, but also including source of income, language, age, and “any arbitrary characteristic.” It’s pretty broad, and more and more sellers are opting to not have their agents forward these letters to them.

Sellers might provide all (or almost all) disclosures, inspections and reports upfront:

Traditionally, buyers footed the bill for home inspections during a real estate sale and sellers provided their disclosures during the first week of escrow. Having sellers provide an inspection is slowly catching on now, and it’s really helpful when a buyer can review a home inspection and other relevant documents prior to writing an offer — particularly if a seller has stated they want to sell the home in “As Is” condition. By providing these inspections and their seller disclosures to buyers ahead of time, buyers actually have at least some idea of what “As Is” means for that property. The less appealing side of this practice is that in a highly competitive market, it puts pressure on buyers to review all of these documents within 1-3 days before writing their offer, and to consider removing some or all of their investigation contingencies with their offer. The seller isn’t forcing this, but if buyers want a home badly enough and there is a lot of competition, removing contingencies along with an offer is an option. The real estate community does not condone forgoing your own inspections; if you are thinking this might be a good competitive move for you, please review the pros and cons of such a choice with your Realtor.

Things are always changing in the world of real estate. Mortgage interest rates jumped up — they are still good rates but definitely higher than last year, making mortgage assisted purchases a little more challenging. So far the higher interest rates have not made an obvious dent in prices, but we will all be keeping an eye on this, along with price trends in general. Another topic on everyone’s minds is inflation and where that is headed. Real estate has a history of being a hedge against inflation for investors, and investment buying is a big part of what is driving the market right now — with a lot of 1031 tax deferred exchanges and second home purchases. Finally, we should note that in the past two years there has been a major influx of home buyers coming in from out of the area. For more on these topics and up-to-the-minute details about the real estate market, be sure to connect with your Realtor of choice for the latest information that affects your real estate goals.

Sue Irwin is a full-time Realtor with Berkshire Hathaway Home Services, California Property. 805-705-6973 / sueirwinrealtor@gmail.com