Happy New Year Coastsiders! Click below to watch the video - "Coastside Real Estate 2016 - A Year In Review.
THE NUTS AND BOLTS VERSION:
In 2016 Coastside Real Estate entered a market correction period. We know this because:
Housing inventory increased 9% (simple supply-side economics here. more supply has downward pressure on price)
We sold 8% less homes. (despite the 9% jump in inventory)
It took longer to sell those homes. (16% longer)
Homes sold for less money relative to list price. (for the first time in a few years sellers got LESS than asking price)
Home prices were relatively flat (less than 1% growth in 2016 while 2013, 2014, 2015 each were in the 15% range)
And...Interest rates hit a 2-year high in December (and remain higher in January in 2017)
Strange as it may seem this is NOT BAD NEWS.
THE SUPPORTING DATA (broken out by specific town)
There were more homes on the market in 2016. All else equal, increases in housing supply exerts downward pressure on price. NOTE: That both Montara and El Granada had less inventory. This will come up later
In 2016 homes to longer to sell in general. Homes in El Granada and Montara sold faster in 2016. Look above. These are the only two markets that had less available inventory in 2016. This is not coincidental. That's the supply and demand thing again.
Less homes were sold in 2016. HMB was the only community that sold "more homes" but, remember that HMB had 21% more inventory. So HMB actually had a drop in sold homes relative to their increase in # of homes available. Big drops in EG and Moss Beach. (EG as an example had 30 homes sold in 2015 and 20 in 2016
For the first time in a few years homes sold for less than asking price. To put it in perspective; If you listed a home for $1,000,000 in 2015 it would have sold for $1,009,000. If you listed the same home in 2016 it would have sold for $986,000. (all else equal). That is a $23,000 drop. This is significant.
Home prices were flat (less than 1% growth). The big jump you see for Montara was influenced by 2 homes that both sold in the $2.5m range. This skewed the average higher for Montara.
Here is the interest rate jump that everyone is talking about. Around election day rates started to increase and finished the year at a 2-year high (and still remain pretty high in Jan)
Seems bad right? Not really. Lets expand our perspective on rates to a 10-year time frame. That jump looks a little bit smaller now doesn't it?
Expanding our perspective to a 45-year time frame. The jump is just a blip at this scale.
ALso, let's remember that one of the main reasons rates were so low was because the Fed Reserve kept them there. This was done in an effort to stimulate the economy and help pull the nation out of recession. So....this increase in rates is one sign our economy is improving.
The adjustment we see in home prices, sales, demand is not inherently bad either. Below is a graph of Coastside (HMB, EG, Montara, and Moss Beach) home prices over 8 years. You can see that in 2013, 2014, and 2015 we had huge jumps in home prices
A leveling off in prices is natural following a period of high growth. To demonstrate the the point further, look at BAY AREA average home prices over the past 30+ years. (I smoothed out the graph for purposes of simplicity)
You can see there is a cycle of significant appreciation followed by a period of correction or adjustment where home prices are flat or even slightly negative. Note: the 30% drop in prices from 2007 to about 2011 was NOT natural. This was largely driven by the housing, banking, underwriting crisis everyone is familiar with. If your not familiar with it watch the movie "The Big Short". Its an entertaining flick that does a good job at explaining what happened. The yellow circle...that is home growth in 2016 - relatively flat. Again, we entered a period of correction which is natural and necessary to keep the system healthy.
Why can't home prices continue to appreciate at 15% a year?
Simply put; people's income isn't growing that fast. If home prices greatly outpace income growth then you get.....
A situation where housing affordability drops
Buyers get boxed out of the market and 1st-time buyers get entirely boxed out. (1st time buyers are very important to sustaining a healthy and growing housing market)
Demand drops (because people can't afford to buy homes)
Supply of homes increases
Then....you risk a substantial price adjustment. If this happens you get "real" erosion of equity, of net worth, and of people's ability to invest back into the market which causes a host of other economic problems. We don't want this.
So....adjustment periods are important and necessary for continued long-term growth real estate which is one of the largest drivers of economic well-being and the largest source of net worth for the american population.
Ok...so what does this mean for you? There is a lot of context that accompanies this slide in the video. If you want the context go ahead and watch the video.
So that is a wrap! In summary:
The local housing market entered a market correction period in 2016.
I expect that it will continue through 2017.
Neither this correction nor the interest rate increase are inherently bad. Both are necessary components of larger economic cycles.
Real Estate is still the best investment you can make in the world. (give me a ring if you want to talk about the power of "smart" real estate leverage")
AND......you still live in the best community in the world so get out there and enjoy it!
If you have any questions about this stuff; you want to buy a home, you want to sell your home, you want to know what your home is valued at, you're a renter and want to know if you can afford to buy, you want to dive deeper into the local real estate market, you have questions about the lending or financial markets, etc. DON'T HESITATE TO REACH OUT. I geek out on this stuff and would be happy to talk real estate shop with you any day!
Author:Mathew Haugen Phone: 650-533-7989 Dated: January 12th 2017 Views: 1,016 About Mathew: MATHEW HAUGEN is a seasoned internet entrepreneur and coastside veteran who is at master a maximizin...
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