2014: A Year for the Record Books.
The real estate market in San Carlos, as well as everywhere on the San Francisco Peninsula, will be one that goes down in the record books. Fueled by a robust economy, a booming stock market, and low interest rates, the local real estate market started out of the chutes absolutely on fire and never cooled off the entire year. The exponential job growth in the tech sector brought many new home buyers to the local market, which exacerbated an already critical imbalance between the demand for homes and the available inventory. When you add the unprecedented buying power that buyers wielded this year, you had the perfect storm which absolutely blew the roof off the market.
Even the most bullish of predictions that were made for 2014 market a year ago were surpassed with relative ease. A year ago, I published some predictions about how the market might behave in 2014. While many of the things I predicted turned out to be true, there were several predictions that I was simply wrong about:
“If these prices were to continue on the same trajectory, at this time next year the average price for a home in San Carlos would top $1,500,000, at an average of $828/square foot. The average price of a 3-bedroom home, which is the bread-and-butter of the San Carlos housing stock, would hit $1,445,000. And remember, these are only average values. Many homes would thus have to sell for even higher. Is this where market will be at this time next year? I’m betting that it won’t…” — White Oaks Blog, Dec 2013
“There will be significantly more listings in 2014 than in 2013.” — White Oaks Blog, Dec 2013
“Interest rates will rise in 2014.” — White Oaks Blog, Dec 2013
The reason for detailing last year’s predictions above was not to highlight the fact that I was about as accurate as the average weather forecaster, but more to call attention to a couple of key surprising factors that served to push the local market to stratospheric heights. In the charts below, we’ll discuss all of these elements in more detail.
2014 saw prices for a single family residence in San Carlos hit all time highs. The average sales price for a home in San Carlos increased by 16% over 2013 to a whopping $1,460,478 which is easily the highest amount of any year on record. And that figure is up a staggering 36% from just two years ago.
The median sales price for a single family home in San Carlos jumped by 18% over the same period to its highest level on record of $1,425,000, or an incredible 43% jump in two years, as you can see from the same graph below.
And about that prediction above that average price of the “bread and butter 3BR home” would not hit $1,445,000 in 2014? Well, I was correct…but not by much. The average price for that 3BR home in San Carlos last year hit $1,412,967. Yikes…
The final pricing metric that we always look at is a normalized average price per square foot. It should be a surprise to nobody that this figure also leaped into the stratosphere in 2014. There was a time in very recent history that $650/square foot was only achieved by brand new construction. In 2014, that figure bypassed the $700 range entirely, and reached a mind-boggling $814/sq foot.
Where’s the Inventory?
One of the other predictions I made last year was that there would be more listings to choose from in 2014. That seemed like a safe bet, right? Prices had already hit all-time highs at this time in 2013, and it was evident that many potential sellers were taking a wait-and-see attitude up to that point. So it would stand to reason that more people would opt to sell their homes in 2014 and cash in on the recent run-up in prices.
That simply did not happen. Not only were there not more listings in 2014 than in 2013, but the 310 new single-family listings in 2014 represented the lowest level in the past 10 years. Above all else that happened last year, this is was the biggest surprise to me. See below for the downward trend that has extended for its fourth year.
If you subscribe to the supply vs demand theory of economics, then you’ll understand why this is one of the primary factors that pushed prices up at such an astounding rate last year — when more buyers compete for fewer properties, prices go up.
Another reason that it seemed like there was nothing on the market last year, aside from the fact that there were fewer listings, is that the listings that did hit the market didn’t stay out there for very long. Most homes that sold last year only needed a single open house weekend to garner a of sufficient number of offers to get the desired outcome. The 17 day average is also the lowest amount on record in recent history.
Show Me The Money.
With the super-heated nature of the local economic market, it was a reasonable expectation last year that interest rates would start to climb. The housing recovery was well underway, the stock market was on fire, and even the Fed announced that they would start to pare back their investment in mortgage-backed security market.
But that simply didn’t happen. Interest rates for home mortgages remained largely unchanged in 2014, and remained at historically low levels largely because the Federal Reserve maintained their base rate as low as possible. This created an interesting and fortuitous quandary for many well-heeled buyers who may have planned to pay cash for their home – why would a buyer not take advantage of borrowing money at 3.5%, when their cash could make twice that amount (or more) in their investments? Consequently, there were fewer all-cash offers than expected, especially considering the buying power that many buyers wielded last year.
What’s On Tap for 2015.
Looking forward to 2015, it’s going to be more of the same of what we saw in 2014. There has been no fundamental change in the forces that have driven the housing market to these heights. The local tech economy is still on fire, with companies trying to fill more jobs than there are qualified candidates, and well-funded start-ups popping up seemingly everywhere. And despite recent setbacks, the stock market is still flirting with historic heights, which significantly increases the purchasing power of home buyers.
So unless there is a significant and fundamental change in these forces, there’s no reason for the housing market to behave much differently. If I had to stick my neck out and make 3 predictions for the coming year, here is what they would be:
- Home prices will continue to rise. Because of the factors cited above, there is nowhere for prices to go but upward. Will they grow at the same rate as in 2014? That’s really hard to say — many believe that the growth rate that we are seeing is simply unsustainable. But we said exactly the same thing last year…
- Inventory will remain tight. As I am writing this report, there are exactly 4 single-family homes and zero condos or town homes for sale in the entire city. Yes, those numbers will increase as we enter the Spring market, but we are starting 2015 with the lowest inventory in recent memory. And even as inventory increases, there will still be far more buyers than there are available homes to buy. So inventory will continue to be tight throughout the year.
- Interest rates will rise. I know I said this last year, but this time I really mean it 😉 Seriously, the difference between this year and last year is that the Fed recently announced that they plan to raise their base rate in 2015, whereas they were much more wait-and-see in 2014. The economy is simply growing too fast for them not to raise rates in an effort to put the brakes on potential inflation. It’s going to happen.
Got more questions about the local real estate market? Let’s talk…
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