Where Have All the Listings Gone?

The median sales price of single-family residences in 2006 declined from 2005 in the Carpinteria to Goleta area (yes, but it did increase in Montecito). I am waiting until late January to calculate the final numbers but the median sales price dropped approximately 6.7% year-over-year. The median price indicates the mix of homes that are selling in the market, not necessarily the value of an individual home. Unless you bought in 2005 and need to sell today, it might not be reasonable to complain. After years of double digit increases, it is a turn-around that was expected.

What has been more of a shock is the decline in the number of sales from 2005 to 2006 – a drop of 15.6%. It is even more surprising when you remember that the number of sales in 2005 dropped 12% from 2004.

That being said, it is interesting that during the last four months of 2006, the number of single-family residential sales declined only 4.5% as compared to the 15.6% drop year-over-year.

The steep 30% drop in the number of active listings during the last four months of the year compares to an only 10% drop during the same period of 2005. ‘Active’ means the number of listings for sale, including those in escrow, in the Multiple Listing Service at the specified chart date.

Yes, inventory was up an incredible 55% comparing August 2005 to August 2006, but where have all the listings gone during the last four months of the year? Since the 2006 number of sales was similar to 2005 during the last four months of the year, we know they didn’t all sell. This is one of the intrinsic idiosyncrasies of a Santa Barbara real estate seller. People will often say, “I’m in no hurry to sell. It only costs me eighty dollars per month to hold a property that I bought for two hundred fifty thousand dollars that is now worth one-point-eight million dollars. I can wait.” So houses get withdrawn from the market. Of course, if a seller used this argument in 2005 they received a rude awakening in 2006.

A client of mine, Larry, recently asked why some homes selling in 2005 in the $1 million range are today listed for a price that’s 10% or even 20% cheaper, an indication maybe that values had dropped far more than was actually reported. But you can’t judge the market by the difference between the asking price and the selling price. Only when you know how realistic the original asking price was, and have an intimate knowledge of comparable closed sales, can you accurately determine the current value of your property.

What is true, however, is that in the lower price range, prices have probably dropped a higher percentage than in the higher end. Entry level buyers are more susceptible to interest rates, are more often first time buyers and the inventory of active homes under a million dollars was up 91% from August 2005 to August 2006. The chart also indicates that the number of homes that sold under $1 million for the last four months of 2006 represented 44% of the total sold. During the same period in 2005, only 34% of homes sold were under $ 1 million.

Larry also wondered why last year, he didn’t hear listing agents at Sunday open houses saying, “we’ll look at offers in a week, sift through the five to ten offers and get back to you when we can.” However, houses priced correctly in 2006 did sell at or close to asking price – and ‘close to’ sometimes meant over asking price. Multiple offers did not in fact disappear.

I don’t hear anyone predicting that Santa Barbara real estate will have a major crash in 2007. We still have great interest from buyers wanting to move up within Santa Barbara and buyers from all over the world who want to move into the area. Who will win the race between the patience of the seller and the caution of the buyer in terms of price? Interest rates may force the buyer’s hand. Inventory, the economy, retirement and job loss may force the seller’s hand.

Either way, I hope to have a hand in it.