Summer Slow-Down? Maybe Not This Year in San Carlos.
June 22, 2010
We're heading into that part of the year where the real estate machine normally takes a little breather. The kids are out of school and families try to squeeze in a getaway or two before school starts up again. House hunters who were active in the Spring season have usually found their homes by now, and are busy over the summer moving into their new place. Those few who didn't find their homes are also inclined to take a break from the emotional roller coaster of looking for a home for the past 3-4 months. That's what generally happens in a typical year.
The statistics generally back up this perception, too. Take a look below at the market performance in San Carlos over the summer months from last year:
Pay special attention to the red line that tracks “Pending Sales” — this metric is the most accurate gauge of buyer activity, as opposed to homes “Sold” which tend to lag activity by 30-60 days. There's a clear dip in the number of houses that went into contract in July – September time period, which validates what we already felt. Looking back a few years, this phenomenon generally repeated itself, with the notable exception of 2008 when the market simply tanked in October after the credit crisis and never recovered at all that year.
Will 2010 Be Different?
What's going to happen this summer? Will the market flip over to snooze-control when the calendar hits July? I don't have a crystal ball, but there are three unique factors in play right now that lead me to believe that 2010 may just buck the trend of the annual summer slow-down. Here they are:
- Abnormally High Demand. Take a gradually improving economy along with a groundswell in consumer confidence, and inject all time low interest rates, and the result is a huge wave of active buyers that are in the market right now. Only a month ago we were predicting that the interest rate on the ever-popular high-balance conforming loan (up to $729,750) would surge to 5.5% or higher — what's it at today? 4.8%. Buyers who were sitting on the fence waiting for the right time to buy now realize that money may never be this cheap again. The result? There are simply way more active buyers now than there were at this time last year.
- Low Supply. What's the biggest factor that has prevented many of the buyers from pulling the trigger? Lack of inventory. As I have documented since the beginning of this year, the number of homes for sale this year has significantly lagged previous years. Only in the past few weeks have we been able to maintain an inventory of about 60 homes for any length of time — and that number is still below the average for a normal year. For home buyers who insist on living in the “flats” the problem is even more acute. Right now, there are only 16 homes for sale in ALL of White Oaks and Howard Park, which is only 25% of the total inventory. And throughout San Carlos, the competition remains fierce for the more desirable homes and locations — even up to last week, multiple offers were common.
- Fall School Enrollment. Budget deficits are not unique to the City of San Carlos, nor its school district. Up and down the Peninsula, school districts are slashing positions, increasing class sizes, and cutting programs just to make ends meet. All of this distressing news has had the effect of boosting the stock of the San Carlos schools. Consequently, being in the San Carlos School District has now changed from a “nice to have” to a “must have” for many families. How does this impact summer sales? In order for their children to be enrolled in the new school year, they must have a San Carlos by the time school commences in August. That factor alone will keep many buyer's feet firmly planted to the floor throughout the summer.
Expect a Busy Summer
As I will discuss in more detail in the mid-year update in a few weeks, the number of homes sold in San Carlos through May 2010 is already 12% above the same period last year, so the momentum leading into this summer is already in place. If home sellers keep putting inventory on the market over the next 3 months, I think you'll see a much different summer real estate market in San Carlos this year.