If you ever needed a real-life example of the basic economic concept of supply and demand, then you need to look no further than the San Carlos real estate market in 2013, because it literally took a page out of the econ textbooks. 2013 was a phenomenal year for home valuations in San Carlos on every conceivable metric, as the market rode a rapidly rebounding economy and job market in the Bay Area. Add to this mix an endless supply of nearly free money, and you’ve just created a demand for housing that we haven’t seen in almost a decade.
The inherent limitation of San Carlos (and every other community on the Peninsula) is that there is will always be a finite and predictable housing stock because of the fact that the Peninsula is land-locked. Unlike the east bay or south bays where new expansion is possible, the total number of single-family homes in Peninsula communities has only seen an infinitesimal increase over the past decades. So no matter how many people suddenly want to move into the City of Good Living, there will only ever be a fairly predictable number of homes for sale during any given year.
To exacerbate this problem, the number of single-family homes that were listed for sale in San Carlos on the MLS actually dropped in 2013 from previous years, which created the perfect storm for home sellers: If you couple high demand with low inventory, prices will increase.
And boy, did they ever. Let’s take a look at the numbers.
Going Up, Up, Up.
You’ve seen the following chart numerous times in the many price analyses that I do on the blog. Average sales price is the most commonly used metric to gauge the growth of any housing market, and is a good starting place to show the dramatic growth in house prices in San Carlos.
It was big news last year when the average price of a single-family home in San Carlos topped the $1M mark. This year, the market just blew past that mark to over $1.26M. What kind of growth is that?
- 17% increase in just one year.
- A whopping 31% increase since 2011.
If you had the foresight to purchase a home in San Carlos in 2011, then you should be smiling at these numbers.
The price-per-square ratio foot is another metric to assess the performance of a real estate market. It’s slightly different because it helps remove the skewing effect of the data if an inordinate amount of larger (or smaller) homes sold in a particular year.
The Price per Square Foot ratio saw similar growth as the average sales price – an 18% increase year-over-year, and a remarkable 27% increase since 2011. These are simply stellar increases in such a short amount of time.
Ask More, Get More.
One of the reasons why prices increased so quickly is that smart sellers recognized the massive disparity between the number of buyers and the available homes for sale in 2013, and they ratcheted up their asking prices accordingly. Hey, you don’t get what you don’t ask for, right? Take a look at the average listing price in San Carlos in 2013:
The average asking price of over $1.2M is the highest average list price in San Carlos for the past 10 years — quite possibly the highest ever. One might think that such a rapid rise in the list price of the same housing stock would have a dampening effect on the overall prices. But take a look at the following chart:
This is a chart that shows the average ratio of the final sales price to the initial list price of all homes sold. In other words, how much over (or under) the asking price a home fetched. For example — in 2012, a home that was listed for sale in San Carlos fetched a price that was about 2.3% above the asking price on average. But in 2013, homes topped their asking price by an average of 8.6%. And this was in spite of the fact that the average asking price had already increased by 6% from 2011. There seemed to be nothing that could stop the market in 2013.
You might think that in a year when home prices were escalating so rapidly that more home owners would jump into the fray and cash in on their new fortune. But that simply wasn’t the case in 2013. Anytime you looked at the number of homes for sale in San Carlos, we were sitting at some ridiculously low number — for most of the year it was below 20. It now sits at 3 – in the entire city.
Was that caused by the fact that homes were selling more quickly, or because there were fewer homes for sale? As it turns out, it was both. Take a look below:
The number of homes that were listed on the MLS last year in San Carlos was 330 — that was the second lowest total in the past 10 years, as slightly eeked out 2012 by 3 listings. This is a huge difference in a town that usually sees closer to 400 homes hit the market in a normal year.
And did homes sell more quickly? I think you already know the answer to that one….
Basically, it took exactly half as long to sell the same number of houses in 2013, than it did in 2012. Now you know why it seemed like there was never anything for sale in San Carlos in 2013.
What’s in Store for 2014?
So there you have it – the basic concept of economics guided the San Carlos market in 2013: High demand, coupled with low supply and cheap money resulted in record high home prices in our town. Will that trend continue in 2014? I believe it will, but not at the same break-neck pace. In a three-part series that I posted a few weeks ago, we took an in-depth look at what the market will likely do in 2014 — I highly encourage you to read it.
Will 2014 be the right year for you to sell your San Carlos home? Let’s talk…
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