What does the word home bring up for you? That may depend on where you sit. For
many homeowners, it may bring up feelings of security and wealth. If you’ve been in the market for a home recently, it probably brings up feelings of discouragement and frustration.
Any semblance of balance in the housing market has been whacked out of orbit, and the gap between buyers and sellers has never been greater.
After the last couple years, I’ll admit as a REALTOR®, that it feels as though the market has been lifted off its foundations, spun around and dropped in an entirely different place. We’re not in Kansas anymore.
You’ve no doubt read that housing prices have skyrocketed.
It’s been a little over two years since the pandemic started, and since then, home prices have risen around 30 percent in San Luis Obispo County.
For perspective, the median price for a single family home in the city of San Luis Obispo prior to the pandemic was around $800,000. If our average price appreciation had continued (around 7 percent growth year-over-year), the median home today would be around $915,000. But what is it actually? $1,060,000.
That ain’t normal.
How exactly this came to be is a longer discussion, but a TL;DR version might read something like:
An already tight housing supply, increased cash-on-hand (due to a slowdown in consumer spending and government stimulus), a highlighted importance of home, and record low mortgage rates fueled a frenzy in the market. This increasingly competitive situation also made it more challenging for move-up buyers, preventing these would-be sellers from listing their homes, constraining supply even further.
The housing drought has moved from moderate to severe.
“Months-supply” is a metric which indicates the balance of the market. The way to understand it is this: at the rate which homes are currently selling, how long would it take to sell all the currently available inventory.
Historically, six months-supply has been the benchmark for a balanced market and would translate to moderate price appreciation.
San Luis Obispo County has hovered around the four month mark since 2014, but in the Spring of 2020, that figure began to decline. We currently have about one month of supply.
Add to this that a steady flow of out-of-area buyers are turning up the heat.
It should come as no surprise that when the California Association of REALTORS® data reveals an uptick in second home sales—like it did in 2021—, SLO County, as a host to several charming beach communities, would see that reflected in its market activity.
Several online publications confirmed this, indicating a serious spike in demand for second homes and luxury properties in our county.
Realtor.com published an article in February ranking San Luis Obispo 2nd in the “Ten Hottest Luxury Real Estate Markets in America.” Another real estate company, Pacaso, put two SLO County towns on their list of the “Top Ten Hottest Second Home Markets in California” (Paso Robles and Morro Bay).
Beyond second home sales, what I’ll call the “Work-From-Home Geo-Shuffle” created a new opportunity for folk in high-priced metros to relocate to more affordable communities. Though affordability is a struggle for many locals, SLO County is relatively inexpensive for people coming from the Bay Area and pockets of Southern California.
I can personally speak to this influx as I’ve gotten much more used to doing FaceTime showings over the last two years, representing many out-of-area homebuyers.
The style of competition is different today too.
In our county, once a new listing hits the market, buyers are usually met with a deadline for when all offers are due. In most cases, it’s only about five days from the date the home goes on the market. Buyers have to be ready to jump.
Multiple offers is the norm too. On average, my clients have been up against six to eight offers, but less than two months ago, I represented a client who competed against 16 other offers. The amount of competition depends primarily on the price segment, but sometimes a particular home itself can draw a lot attention too.
The winning offer usually has a combination of both high price and aggressive terms. It’s become increasingly common for buyers to waive contingencies and offer well over the list price to try to secure the property. For the month of March, the median sales price was 3.7 percent over the list price in SLO County, which may not seem like much, but keep in mind that half of sales are selling above that.
So how long can this go on?
In about a two week period, mortgage rates went up .5 points. That’s a huge rise in rates. Historically, that kind of move in rates would cause many home shoppers to pump the brakes.
The Mortgage Bankers Association did observe a dip in mortgage applications following the rate increase, but for the month of March, sales activity showed yet stronger demand reflected in higher median sales price, shorter days on market and higher sales to list price ratio. The jump in rates and prospect of further increases seemed to create an atmosphere of urgency among homebuyers.
The most affected by higher mortgage rates are obviously those acquiring a loan to purchase their home. But currently, 35 percent of home purchases in our county are all-cash.
I won’t offer a forecast because the last two years has taught me that’s a silly business, but I am hopeful that sustained high rates will take a bit of steam out of the engine, giving move-up buyers a more competitive edge in the market and thereby unlocking some of the held back inventory.
There’s certainly no place like home, and we could sure use a few more here on the Central Coast.