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San Carlos Real Estate July 13, 2011

San Carlos Real Estate 2011: Mid-Year Report

by Chuck Gillooley

Sales Surge, But Prices Stay Flat.

It’s hard to believe, but the first half of 2011 is in the books already.   In the first half of this year, the San Carlos real estate market rode the wave of positive momentum that was generated in 2010, the first sustained rebound in the market in the past 3 years, and enjoyed a spike in pended and closed home sales that was well above the same period in 2010.   But in an interesting twist that has been documented several times on this site, while the number of sales has climbed steadily since last year, the actual prices of homes has not.

The average price of a home in San Carlos actually dropped by 3% in the most recent quarter, and was down by about 1% in the first 6 months, compared to the same periods in 2010.  Interesting!  Is this simply caused by a higher percentage of lower priced homes selling, or are home prices actually dropping in San Carlos?

I think the answer to this question will become evident as we dig a little deeper into the charts, graphs, and tables below.

Pending and Closed Sales.

The graph below shows the closed sales, pending sales, and average inventory of single-family residences for each month since January of 2010 in all of San Carlos:

Pending Sales and Closed Sales: San Carlos 1H 2011

There’s quite a bit going on with this graph, but from the high-level you can see a marked upward trend in both pending sales and closed sales since the beginning of 2011.  How much have both of these metrics increased compared to the same period last year?  Take a look at the table below:

Key Metrics Q2 2011 Q2 2010 YTD 2011 YTD 2010
Pending Sales
104 (+28.4%) 81 164 (+21.5%) 135
Closed Sales
87 (+13.0%) 77 132 (+16.8%) 113

The results are pretty impressive.   If you were one of those who were shopping for a home in the first half of this year and it seemed as if the market was really cooking, now you know why.   There were more homes for sale, and more buyers were buying than any time in the past 4 years.

What’s Up With Prices?

With that huge uptick in purchasing, one would expect that prices would climb with the increasing demand.  After all, that’s exactly what happens with gas prices, right?   Demand goes up, and so do the prices.   Well, as we discussed in the recent Special Report on San Carlos, that hasn’t been happening with homes in San Carlos this year.  Could it be that the inexplicable drop in prices is simply because more of the smaller and cheaper homes are selling this year?

When you consider the next two graphs together, which show the average price for listed and sold homes as well as the median price for San Carlos since January of 2010, you get a much different story:

Average Price for Listed and Sold Homes in San Carlos
Median Sales Price for San Carlos Single Family Homes - 2011

Digging a little deeper into the numbers reveals an interesting paradox:


Key Metrics Q2 2011 Q2 2010 YTD 2011 YTD 2010
Average Sale Price
$963,670 (-3.2%) $995,670 $969,000 (-1.0%) $979,000
Median Sale Price
$918,000 (+0.9%) $910,000 $945,000 (+3.2%) $916,000

While the average sales prices of homes has dropped slightly since last year, the median price has actually increased!   Since the median price is the mid-point of all of the homes sold (in other words, there are just as many homes that sold above the median as below), this interesting twist in the data proves that the drop in the average house price in San Carlos is not caused by more entry level homes selling, since the median price actually increased.   The price of the average house in San Carlos has actually dropped slightly, despite the fact that sales are on the increase.

What Lies Ahead.

Much of the same lies ahead for the San Carlos market in the second half of this year.   Demand for homes should remain strong, and interest rates show no signs of increasing in the near term.   This should continue stoke the fire under the market.   But there are a two factors that may temper the valuation of the market going forward:

  • Economic uncertainty.   Just as we take a few steps forward, the economy suffers a setback.   While Apple and Google continue to hire, Cisco just announced that they may be laying off as many as 10,000 employees, many of which likely live in the Bay Area.   And unemployment is still at abnormally high levels in the valley.
  • Loan Limit Reduction.   As I discussed in this post, the upper limit of the uber-popular high-balance conforming loan will likely drop from $729,750 to $625,500 on September 30th.  If this happens, it will reduce the purchasing power for some buyers by as much as $100,000, and may force others out of the market entirely.   That can’t be good for home prices.

All of the key elements that make San Carlos a desirable place to live are still very much in place.   But don’t expect a significant appreciation in home prices over the next quarter or so.

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