San Carlos Real Estate Agent, San Carlos Realtor The $1.3M Bombshell. | The White Oaks Blog
San Carlos Real Estate February 26, 2013

The $1.3M Bombshell.

by Chuck Gillooley

Reverberations.

A couple of weeks ago, the sale of the 3BR/2BA home at 148 Chestnut Street in San Carlos closed escrow. It was a hotly contested listing that generated 22 offers, so everyone was naturally expecting that it would fetch significantly higher than the $999,000 asking price.   And why not?  The house itself was quite charming — nicely updated with a spacious, remodeled master suite and located on a quiet stretch of Chestnut Street.   And at the time the home hit the market, there were no other “entry-level” 3-bedroom homes on the market in San Carlos.  The only other 3BR home on the active list was the much more expensive home at 1364 Crestview Drive — different house, different part of the city.

As the days clicked by after the home went into contract, many eyes were anxiously watching to see what the final sales price would be.  I certainly was, because I was preparing to bring my listing at 278 Vine Street on the market just two blocks away, and I was anxious to see how the closing price of 148 Chestnut might affect our entry to the market for Vine.   And many others watched it as well, because it would serve as a pretty good measure of where the bar would be set for the entry level, 3-bedroom housing market in 2013.

So when the escrow closed and the final sales price of $1,301,000 was posted for the public to see, it hit the local market like a bombshell, sending shock waves rippling throughout the real estate universe of San Carlos.

The New Bar?

The fact that a 3 bedroom home sold for $1.3M wasn’t what shocked the market.  Recent sales at 2055 Belle Avenue ($1.350M), 112 Devonshire Boulevard ($1.285M), and 853 Cordilleras Avenue ($1.280M) already showed that the market could absorb $1.3M for a medium-sized 3BR house in San Carlos, at least for the right house.   No, what sent reverberations through the market had far more to do with the address of 148 Chestnut Street rather than the house itself.

148 Chestnut is located in the northern section of San Carlos known as Cordes, which is the hilly terrain that stretches from San Carlos Avenue up to the border between San Carlos and Belmont.  As I’ve written before on the blog, Cordes often falls outside of the spotlight of its much better known brethren neighborhoods of White Oaks and Howard Park.   So despite its outstanding location close to downtown, great views, and top school track, Cordes has never pulled the kind of prices for equivalent homes in the aforementioned neighborhoods…. that is, until 148 Chestnut.

So when the results of this sale were posted, it hit prospective buyers right in the solar plexus.   After all, it wasn’t too long ago that something in the $900K range would have landed you a nice 3-bedroom home anywhere in the flats of San Carlos.    Now, buyers are having to wrap their heads around the fact that it took $1.3M to get into Cordes.   What does that mean for the rest of the market in San Carlos?  What does that do to the price of 3BR houses in White Oaks and Howard Park?

In the days following the close of this sale, I fielded a number of phone calls and emails from my clients and other market-watchers asking that very question.

Timing.

The significance of the sale at 148 Chestnut will not be felt right away.  It will be measured in the coming weeks as the sale prices of homes that sold after Chestnut become public knowledge.   You can bet that Chestnut was squarely in the minds of buyers when they competed for the listings at 1124 Orange Avenue, and 147 Leslie Drive, both of which are pending now after receiving multiple offers.

The sale of 148 Chestnut Street was propelled by outstanding preparation and marketing of the home, along with some impeccable timing of the market.  As I mentioned earlier in the post, this home was the only 3-bedroom house for sale anywhere remotely close to downtown San Carlos for the short time that it was on the market.   When you combine that with the anxiety buyers in a market of rapidly declining inventory in San Carlos,  you had the perfect storm for a bombshell like this.

As of the time of this post, there were 11 single family homes for sale in the entire city of San Carlos, regardless of the price range.  Facing this, as well as knowledge of the Chestnut sale, some buyers may opt to take themselves out of the market for a while and wait for things to become more balanced and less super-heated.  Conversely, some home owners may finally get the message that these are probably the best possible market conditions that they will see for years, and decide to put their houses on the market.

Until either (or both) of these things happen, don’t expect market conditions to change much.  That’s not to say that the going rate for every 3BR home in San Carlos will now be $1.3M.   But don’t expect the market to come down off this cloud until balance of power swings more back toward the center.

The sales prices that you’ll see posted in the coming weeks will prove just that…
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The $1.3M Bombshell., 4.1 out of 5 based on 8 ratings
Comments 9
  • What a crazy world we live in especially in the Bay Area. This housing market will bust like no tomorrow. A 3 bedroom going for $300 over asking is unbelievable. It’s the real estate agents like yourself whom should be blamed for this stupidity. That $300 would buy one a mansion somewhere else. Who are these people and where do they come from. Why would anyone do this to the market and allow first time buyers like us to be left fighting for it. We are a new family looking for a “dream home” and that concept has gone down the drain by the buyers like this. It’s not like I am poor or don’t have a great job, yes I do but why be in debt forever.

    I guess people haven’t learned their lesson. I would love to see these people when their over priced house or over bid house is back to the true value.

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    • FTB,

      I certainly understand your frustration with the current market conditions for home buyers right now. But to place the blame for escalating prices on the shoulder of Realtors is a ridiculous argument.

      Whether or not someone chooses to compete for a home in this market is a personal decision that only they can make. My job as a Realtor is to make sure my clients are as informed as possible when they decide to jump into the arena and purchase a home. It’s their initials a the bottom of every page of the contract, not mine. Nobody is putting a gun to anyone’s head and making them buy a house in this market.

      Home prices in San Carlos, just like gas prices, and the cost of any other commodity, is at the mercy of demand vs supply. Right now because of the strong job market and low interest rates, demand is far outstripping supply, and prices are going up.

      It’s Econ 1A. Not a diabolical scheme by Realtors to inflate prices. If I had such manipulative powers, don’t you think I would have been using them when the market hit the tank back in 2008?

      Thanks for your comment.

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    • At the end of the day, a home is only worth what someone is willing to pay for it. For you this house may be worth $500K, obviously it was worth $1.3MM to the person that purchased it. And who’s to say that the person who purchased it isn’t a first time buyer, they just happen to be a first time buyer with a lot of cash.

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      • 22 offers is a frenzy and people lose their minds biding. We’ve been in it before, and we were blessed to have not got the house – because we would’ve totally overpaid for something that simply was not worth it. We got the right house at a much better price later on.

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  • I don’t think the values of the homes will be going down anytime soon. It’s clear that San Carlos is the next most sought after city on the Peninsula after Palo Alto, Menlo Park, and maybe Burlingame. The Peninsula has no more land and is the best place to live in the world, the weather, the proximity to everything, the people, it’s all great.

    We were fortunate to purchase our home in February last year and that was the start of this craziness in San Carlos. San Carlos schools are great and people want to pay to get into San Carlos just for the schools, the schools in Redwood City are a far cry from San Carlos in quality, same for Belmont in certain areas. Question is, do you want to buy a home in Redwood City and have to send your 4 kids to private school or pay more money and live in a nice city with public schools that you can feel good about putting your children in.

    Too many people tried to time the market and now with us coming out of one of the worst recessions we have had in 100 years, we are not looking back for a long long time. We have monitored the mlslistings since 2004 and continue to do so as well as read these great blogs such as Chuck’s. I have never ever seen times when almost every house is listed over 1 million dollars. It’s crazy to say the least, thank god I got in when I did. Good luck to everyone.

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  • Keep in mind that the homes east of the caltrain tracks are fetching tidy sums as well. I recall a home that sold for $825 last year in that neighborhood. We paid about that for our home here in the hills back in 2003 , so the price appreciation is in all neighborhoods. This is where first time buyers should be looking if they want to be in San Carlos.

    To cry sour grapes is not fair. Also, to expect to buy your dream house as your first house here in San Carlos without an unlimited budget is just unrealistic. Before the last crash, buyers bought large homes in a remote location where they are constantly building. Unless you plan to stay in a home like that, it is a bad investment. To coin the location location location credo may sound tiresome, but it’s never been more true.

    Impatient buyers not willing to start in a condo and trade up over time should reconsider their focus and possibly look in Redwood City or elsewhere if they want to be on the peninsula in a single family home they CAN afford. It’s sad that so many people continue to get caught up in wanting what they cannot afford. If that describes you, you’re wasting valuable time when you should be looking for more affordable options while they are still out there in other cities on the peninsula. In a couple of months, the prices will just be higher, and inventory may be even lower.

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  • How much of this rise in San Carlos home prices is due to today’s absurdly low interest rates? While I’m certain that there are some all-cash buyers skulking about in San Carlos, it’s probably more reasonable to assume that the overwhelming majority of buyers — especially first-timers — in San Carlos are financing their purchase. And, when you’re financing your home, the size of your monthly payment is paramount. That’s not to say that the total purchase price of the house isn’t important. But, it’s really the affordability of the monthly payment that governs how high somebody can bid on a home.

    For instance, assuming the buyer of 148 Chestnut put 20% down and financed the rest at 3.75% for 30 years, they would end up paying $4,819 per month. That same buyer — back in late 2008 when credit was tighter than today and interest rates were closer to 5.75% — could only afford $1.03M — about $300K less. I live a block away from 148 Chestnut and I know that comparable 3bd/2ba homes in the neighborhood sold in the high $800s or low $900s in late 2008. At the time, that would have translated to a $4,000-$4,200.monthly mortgage payment at 5.75% for 30 years (assuming 20% down). Interestingly, this means that while the absolute price of 148 Chestnut has risen by over 50% in 4.5 years, the monthly payment for a mortgage on the property would have only gone up 14-15%.

    If we were to perform this same type of analysis across homes sold in San Carlos recently, I think we’d see a similar trend. While prices appear to be skyrocketing, the amount of money that buyers were actually spending each month on their mortgage payment would either remain flat or perhaps increase moderately. It would be interesting to know if Chuck has any data to either prove or deny this hypothesis.

    As for the San Carlos homeowner, I firmly believe that the biggest risk in terms of deflating home prices would be a sudden tightening of credit or a sharp rise in interest rates.

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    • Reuben,

      Thanks for your comment. You have touched on a very important point — interest rates. And your assumption is correct, a big factor in the run up in demand and prices for homes in San Carlos is the unbelievably low interest rates on home mortgages right now. Obviously, the more a buyer is borrowing, the more of an effect it has.

      But to give you an example, a colleague of mine just bought a house this month and she told me that the recent dip in rates effectively gave her $300K in additional buying power. That was enough to get her into the 4 BR range that she thought she was priced out of.

      Conversely, if/when rates do rise, it will have a pronounced effect on the seemingly runaway prices that we’re seeing in San Carlos right now.

      Thanks again for your comment — your points were spot-on.

      CG

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  • Perhaps the sour grape like posts are from the people who lost out on the bid?? Seriously this house was called a bombshell for a reason. So many factors played into it but whoever had the offer for 1.3 mill REALLY wanted the house. Either this was his/her dream house, or they will willing to shell out a premium for what they think are value to them.

    I have never thought a house in Cordes of this size could sell for this price, and I live up San Carlos Ave in the Cordes area. But Chestnut has always been a nice street with close access to Downtown and 101. Even when it was a slower market houses on that street has always sold quickly. Congrats on the seller but I won’t bet on a similar house going above this price for sometime.

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