Montecito Heat

This year, the Montecito single-family residential market through April 30, excluding condos, has been actively in the hands of sellers. Although it took an average 17 more days to sell a home, according to data from the Santa Barbara Multiple Listing Service, there were 18 more homes sold for this period, an increase of 30%, and the median sales price increased by 18%. All in all, a total of more than $365 million has crossed the table so far this year, also above last year’s numbers.

For Montecito, there has been neither a burst of bubble nor price erosion, nor seller capitulation. In fact, there is no doubt that Montecito sellers are ignoring the national spin and have been in control since the first of the year.

The question I’m asked most often, however, is not what the market did in the first quarter or last winter or even last month, but rather what is the market doing today? Specifically, how “hot” is the market today? And although most of this information is most valuable at cocktail parties, it seems to me that not knowing what the real estate market is doing is much like admitting, “I have a significant investment in the stock market, yet I have no idea where the market is or how my investments are doing.” Here in Montecito, where we are nothing if not interested in things local, not knowing the “heat” of the real estate market seems somehow wrong, somehow not us.

This column will answer this question each month by reporting the Montecito Heat Index, a measurement of the intensity of buyer demand for Montecito single-family homes today. Specifically, it will determine the ratio between the present active listings, those offered for sale and not yet sold, and pending listings, those under contract for sale and not yet closed escrow, both leading market indicators. And since the market fluctuates seasonally, we will compare present intensity to the same date a year ago. Thus, we can see whether the market is hotter or cooler than last year at this point in time.

National news reports are determined, it seems, to convince people that if the market has not yet collapsed, it is simply a matter of time before it does. The truth is that a particular market’s strength or weakness is determined more by local conditions than macro, national events. It is not that national events couldn’t impact the Montecito market. But without a major national negative event(s), real estate markets are first local and will behave accordingly. Montecito has never had a major increase in new home building, nor significant speculator-driven price appreciation, nor a subprime problem. The local economy is strong and people want to live here. The market should be doing well.

Yet the strength of today’s immediate Montecito market cannot be answered in any absolute sense. It depends. And it depends because neither national nor regional data are going to tell us anything about a particular property. In fact, Santa Barbara county area data aren’t going to tell us anything about a property. We must go even deeper and focus upon not just the immediate Montecito market, but also within price ranges therein. For example, the overall market could be strong and active, but that could be only for homes in the under $2-million range, while homes in the $5-million and above group show no activity.

Accordingly, the Montecito Heat Index ([Pending Listings ÷ Present Active Listings] × 100 = Index) will determine the present intensity of buyer demand for single family homes in Montecito within five price sectors: $5 million and above, $4-5 million, $3-4 million, $2-3 million and $1-2 million. And the results are:

• Group 1, $5 million and above, scores a 9 and lags the 2006 Group 1 index of 11.

• Group 2, $4-5 million, registers 12 and is also below the 2006 index of 21.

• Group 3, $3-4 million, registers 22, which exceeds last year’s index of 10.

• Group 4, $2-3 million, came in at 33, above last year’s 21.

• Group 5, $1-2 million, registered 34, exceeding last year’s 22.

The combined, total Montecito Heat Index is 110, up significantly from last year’s 72. Two sectors are less active this year while three are stronger and showing more activity. The weakest groups are the high end: $4-5 million, and $5 million and above. Both are below last year’s numbers, 18% and 43% respectively, and until recently showing strong numbers.

Today, buyer competition for homes in the $1-2-million and $2-3-million price ranges are the most intense and represent the hottest market segments. Group 5 is the hottest sector at 34, 35% ahead of last year, with Group 4, $2-3 million, very close at 33, and 57% above last year’s score.