The Numbers (Finally) Make Sense.
When we took a detailed look on this site at the numbers for the first half of 2012 in San Carlos, there were a few things that just didn’t seem to make sense. For anyone in the housing market in the beginning of the year, it was painfully evident that the inventory of available homes had plummeted to about half of what one would expect in a normal year. On top of that, the strengthening economy and rock-bottom interest rates encouraged a whole flock of new buyers to enter the market, setting the stage for a very competitive buying environment in San Carlos.
So one could have logically concluded that these conditions would have yielded some predictable results:
- Homes sales figures would drop due to lack of inventory, and
- Home prices would rise significantly because of the disparity of demand versus supply.
But neither of those things happened in the first half of the year. Despite the dearth of inventory, the number of homes that sold in San Carlos actually increased by almost 25% over 1H2011. Go figure. And since there was so much demand for so few homes, you’d expect that prices would skyrocket to reflect the competitive environment — but the average sales price increased only an average of 4.4%. Even more surprising was that the average price-per-square-foot of homes sold in San Carlos in the first half actually dropped by 1.1% from the same period in the previous year. None of these numbers seemed to follow the trend what most economic textbooks would predict.
But as we look at a few key metrics below for Q3 of this year, it’s evident that dynamics of this market have finally caught up, and it has had the adverse effect on the market that we kind of expected all along.
Here’s a chart that you’re probably very familiar with by now. It captures the 3 most common metrics that we use to measure the the activity and relative health of a market: For Sale, Sold , an Pended. The 3rd quarter of 2012 is circled for your reference:
There are a few key things to note in this graph. First, to the surprise of absolutely nobody who is remotely connected to this market, the inventory of homes for sale was down by 1/3 from the same period one year ago — which is the way it has been all year. But take a look at the toll this has finally taken on the market:
- Homes into Contract: Down by 7.4%
- Homes Sold (closed escrows). Down by almost 11%
For the first time all year, these numbers are actually lower than the same period in 2011. Does this mean that the market is slowing down? Yes, but not for the reason that you might think. The market is not being dragged down by a lack of buyer demand — it’s being choked by a lack of inventory.
There’s still a significant pool of buyers who are circling San Carlos waiting to pounce on the right home when it becomes available. The difference? They’re not pouncing on just anything that hits the market. They’re patiently waiting for supply to increase so that they can get what they want, and hopefully not massively overpay in the process.
So what effect has the lack of inventory had on home prices? Take a look at this chart:
Just as you might expect from Econ 101, when demand stays high and supply drops, prices should rise, right? That’s exactly what happened this quarter. The average price per square foot, the only common denominator among all homes sold, actually rose by 11%. But that’s not a surprise to anyone who is competing in this market and has witnessed some of the eye-popping prices that homes are now fetching in San Carlos.
Also, the September figure of $620/sq foot in itself is notable since it marks the first time since June of 2008 that this metric broke the $600 mark for a given month. Prices are definitely going up.
The dip in sales in Q3 does not necessarily mean that 2012 will finish flat compared to 2011. Here is how the unit sales is broken out by month for 2012:
Despite the drop in Q3, the unit volume figure for the year-to-date in San Carlos in 2o12 is still about 10% ahead of the same period in 2011.
For a complete list of all the single-family residences that have sold so far in 2012 (sorted by neighborhood), simply click on this link to download the list: Homes Sold 2012 YTD – San Carlos. Need more data? Just contact me, and I’ll be happy to overload you in statistics!
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