Archive » December 18, 2008
Real Estate View
By Michael Phillips
Montecito Heat Index
The Montecito Heat Index is a measure of demand for single-family homes today. Rather than sales, which closed escrow a month or more ago and referred to as lagging data, the Heat Index is a leading indicator and a snapshot of today’s market demand. The precise formula is pending sales (homes under contract and not yet “closed” or sold) divided by active listings x 100. And since real estate markets are seasonal, and can vary monthly, today’s demand is compared to this date last year. All data is from the Santa Barbara MLS.
Last month, the Index registered a 48, the lowest score since the inception of the Heat Index in May of 2007. Today’s score registers 30, setting yet another new record for the lowest all-time score. Last year on this date, the score was 59.
The $1-2-million group is again the strongest, most in-demand, sector with a score of 13, nearly doubling last year’s score of 7. This sector began the year as our weakest group and became our market leader sometime this summer.
The typically solid $2-3m group scored a 6, below last month’s score and far below last year's 29.
The $3-4m sector reached an 8, below last year’s score of 12.
The $4-5m group scored a zero for the third consecutive month, and the $5m and above homes scored a 3, off considerably from last year’s 11.
Sales in Montecito are down 20% from last year. The condominium market is struggling as well and, in spite of 16% fewer units on the market, sales are down 37% year to year.
Median Price Still Up
Yet with median home prices down double digits throughout most of the country, we in Montecito have experienced a median price increase. In June, our median sales price was up 39% over last year, reaching $3.7m. Today, although our median sales price has fallen a dramatic 67% from June, it remains up 13% over last year, at $3,250,000. All in all, not a terrible way to end the year.
Today’s Heat Index, however, tells us that demand is week and by the time the New Year rings in, our sold data is going to start looking a whole lot worse than it does today; of the 198 single-family homes currently on the market, only 11, or about 5.5%, are under contract. And, for the high-end $5m and above group, the picture is even darker. Of the 92 homes for sale in this sector, (an increase in new listings of more than 100% in four months) only three, or 1.5%, are under contract.
After finally wresting at least partial price reductions from the very resilient Montecito Sellers, Buyers – with more choices than ever – seem to have moved to the sidelines. In fact, with the exception of the $1-2m group, it feels as if they may have gone home entirely. Maybe it’s the holidays, yet, when one considers the unprecedented systemic economic uncertainties at hand, such inactivity is quite understandable.
Although predictions should never be taken seriously, I have a hunch that given the present high inventory of homes for sale, Sellers, come the New Year, will most likely stop putting their homes on the market unless they must sell. This should first occur in the $5m and up group with currently almost 100 homes competing for attention. This should slow the pace of the recent price erosion we have been experiencing. And, although investors are buying the lower end of the market, for the typical Montecito buyer, who is a self-employed stated-income borrower, finding mortgage funding has become far too difficult. This will have to change.
In the meantime, there is cash. Here’s hoping that in the New Year, those who have some left will find Montecito the place to put it. Happy Holidays
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