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San Carlos Real Estate April 18, 2012

San Carlos Real Estate 2012: The Q1 Report.

by Chuck Gillooley

Off the Charts.

That’s about the best way to describe what happened to the San Carlos real estate market in the first quarter of this year.  And the “charts” below only scratch the surface in explaining how convoluted the market is from just last year.    As early as the third quarter of 2011, it became apparent that our market was entering a period of sustained growth.  The local economy was finally on the rebound, and the pending sales figures reflected this newly found confidence with the highest numbers that we had seen in 5 years.  So it was no giant leap of intelligence to predict that we’d start 2012 on a strong note.

But nobody predicted what was coming in the first quarter of this year.

A Tale of Two Trends.

As the traditional spring real estate market got underway in 2012 a huge number of eager and well-qualified buyers, buoyed by a strong job market and low interest rates, took to the streets searching for a place in San Carlos to call home.   However, the problem that nobody predicted was that sellers just weren’t selling.   This created an imbalance between buyers and sellers that hadn’t been seen in decades, resulting in multiple offers and aggressive bidding on the majority of transactions that took place in the first quarter.   The chart below captures much of the craziness that took place:

San Carlos Real Estate: Q1 of 2012

There are two significant trends at play here, and they’re both heading in opposite directions.  While the pace of home sales started to catch fire in mid-February, the inventory just never materialized.  Home buyers had about 1/3 of the homes to choose from than they would have in a normal year.    Consequently, the surge in sales activity served to drive down the inventory to levels not seen in recent memory.

The two circled areas in the chart above are for the first quarters of 2011 and 2012, respectively — and they couldn’t be any more different from each other.   Q1 of 2011 was a growing market that gorged itself on healthy inventory levels.  The pace that was set in Q1 of 2011 helped set sales figures in Q2 that hadn’t been seen in years.  Fast forward to one year later, and you have the same frenetic buying pace, but without the inventory to feed it.   Here’s what the numbers looked like:

Key Metrics Q1 2012 Q1 2011 % Difference
Pending Sales
89 60 +48%
Closed Sales
58 45 +29%
Average Monthly Inventory
24 49 -51%

Prices Not Impacted…Yet.

One might rightfully expect that home prices would rise in a hot market.  After all when demand outstrips supply in any market, prices go up — gasoline, anyone?   But despite the improving housing market in 2011 and the recent surge in multiple offers and competitive bids, prices have remained relatively flat in San Carlos.  Take a look at the following graph:

Average Listing and Sold Prices: San Carlos Q1, 2012

The green line shows the average list price of all homes on the market in San Carlos.  Part of the steep uptick in March can be attributed to a few high profile listings that hit the market north of $2M.  The red line reflects the average closed prices of homes that sold in San Carlos.   Even throughout the spring surge of last year, prices stayed relatively flat.  Only in the March 2012 data are we seeing a significant uptick in prices…  but one month does not a trend make, so it will be interesting to watch this graph in the coming months.

Sustainable Growth?

All of the elements are in place for a phenomenal year of growth in the San Carlos real estate market — minus a critical one.    Interest rates are low, the Silicon Valley unemployment rate is dropping, and there are a number of IPO’s on the horizon.  But the lack of inventory will absolutely starve this market, and I fully expect that the growth rate will taper off in the coming months without a significant injection of homes to bolster the inventory.

After all, it’s all about Econ 101 — you can’t buy what’s not for sale.

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