3 Changes to the San Carlos Market in 2014.
As we wind down what has been one of the most remarkable years in local real estate in recent memory, everyone who is even remotely connected to the real estate market — buyers and sellers alike — are taking a brief pause and looking ahead to the coming year. One of the biggest questions that everyone is trying to answer is:
What’s going to happen the San Carlos real estate market in 2014?
Yesterday in part 2 of this series, I predicted that the San Carlos real estate market in 2014 will kick into high gear much more quickly than in typical years, as sellers look to get a jump-start on their competition. If 2013 was any indication, home sellers fared remarkably well when they sold their homes during those windows of time when there was very little competition (like right now.) So rather than wait until the Spring to list their homes when everyone else will be doing the same, savvy sellers will buck that conventional wisdom and test the market early in 2014. Really early.
Today, in the third and final post of this series, we will dive into the third key factor that will impact the real estate market in 2014: Home Prices.
#3. Growth Rate in Home Prices Will Slow.
As is the risk with any prediction, this one is a golden opportunity for me to look back at this post a year from now and eat my words. But I’m going to stick my neck out and predict the following: The growth rate in home prices in San Carlos is going to taper in 2014. Now before there’s a wide-spread panic amongst home sellers, read carefully into what I’m saying (and what I’m not saying) — the growth rate of home prices will taper. This doesn’t mean that there will be no increase in home prices in 2014 (sorry, home buyers), nor does it mean that prices will flatten or drop in 2014 (ditto.)
But it’s hard to fathom that the astonishing run-up in home values over the past two years in San Carlos can sustain at anywhere near the current rate. Consider the following: The average sales price of a single-family home in San Carlos increased 17% since just last year, and a whopping 31% since 2011. The average price-per-square-foot of those same homes jumped by 17% in just a year, and 27% since 2011. See the graphs below.
Let’s put this in perspective: 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, and there are a number of reasons why not:
- Interest Rates Will Rise. Rates have already risen significantly since the days of 3% money, and this happened without the Fed raising their prime rate. The national unemployment rate hit 7% last week, which is the lowest point since 2008 — this happens to be the magic number that the Fed wanted to achieve before it altered its “hands-off” position on the current bond buy-back policy. In other words, it’s not a matter of if rates will rise, but when.
- Increased Inventory: If the inventory increases as I have predicted in the first post of this series, this will help to level the playing field somewhat for buyers. It’s the basic law of supply and demand, and prices will reflect the easing of this pressure.
- Price Increase vs Salary Increase: Most homes in San Carlos are still purchased with a bank loan. It’s a safe bet that home prices have increased at a far faster rate than the incomes of most home buyers, even in his white hot technology sector. So if the market was to stay on its current trajectory, at some point its going to price itself right out of the range of many entry-level buyers.
- Quality of Housing Stock. Let’s face it — much of San Carlos is still dotted with smallish 3BR homes on very average size lots. And many of these homes haven’t been updated since Richard Nixon was in the White House. There’s only so much value that you can eke out of some of these homes, and I think you’ll see the buying population draw that line in the sand this year.
So while I think the San Carlos real estate market will continue push valuations into uncharted territory next year, I believe the increase in prices will be at a much slower rate than the last 24 months.
2014 In a Nutshell.
In 12 months when we take another look in the rear-view mirror, we will undoubtedly see that 2014 was another record-breaking year for real estate in the City of Good Living. What I believe will be the hallmark of the upcoming market is exactly what I have outlined in this 3-part series:
- There will be significantly more listings in 2014 than in 2013.
- The market will start very fast in 2014.
- The growth in home pricing will curb somewhat in the new year.
Enjoy the remaining few weeks of 2013, and strap in for what will be another very fast-paced year here in San Carlos. Happy Holidays!
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