Special Report: Is the Real Estate Market Softening in San Carlos?

December 15, 2010

The Over/Under (aka Red vs Green).

If you follow the San Carlos Week in Review series on this site, you know that each week I post all the homes that sold in San Carlos the previous week, along with the relationship between the sales price and the original list price.   I even color-code the difference;  if a home sells at or above its original list price, it's highlighted in green — if it sells below list, it's in red.   For a town where it's almost expected that homes will sell above the list price, we have definitely grown more accustomed to seeing lots of green in the weekly update.

But have you noticed in the past few months that the report has been dominated by red ink?  I noticed it too, so I decided to do a little digging into the numbers.   I took the recent sales over the past 4 months and compared them to the sales figures for the first half of this year.   What I found was definitely an eye opener…

To compare the two periods; over the most recent 4 months, 83 single-family homes sold in all of San Carlos. In the first half of 2010 114 sold.   Care to guess what percentage of those homes that sold were able to fetch a price at or above the list price (i.e. green)?   The answer will surprise you:

% of Homes Sold At/Above List
Jan-Jun 2010
Past 4 Months
List Price Over $1M 39% 21%
List Price Below $1M
62% 39%
Total 54% 33%

What do these numbers mean?  In the first half of this year, fewer than half of the homes that sold in San Carlos (46%) sold below their original list price.  But during the past four months, a full 2/3 of the homes had to drop below their list price in order to sell.    That's a big difference in just a short time.

How much did prices drop below list?   Take a look at the following chart:

San Carlos 2010: Avg Sales Price vs List Price

Two things to notice in this chart:

  • First, the blue line is a ratio of the sold price to the original list price.  Notice the downward trend over the past 4 months.   Homes that sold during this period on average sold at 2-6% below the list price.
  • The second thing to notice is the average days on the market — it has been trending upward since July.

In a nutshell, it appears homes are fetching less and they're taking longer to sell.  Hmmmm…  let's dig a little deeper.

Listing Prices on the Decline.

One possible explanation for the sudden disparity between list price and sold price is that homeowners (and Realtors) may have gotten a little too optimistic in the second half of the year, and perhaps priced their listings a bit too high?  That's certainly plausible, given the strength the market has shown in the first half of the year.  But take a look at this graphic:

San Carlos 2010: Avg List Price and Sold Price

The dark green line shows that the average list price for a San Carlos home actually declined throughout the year, and over the last 4 months was nearly  $140,000 less than it was at the beginning of the year.   So scratch the idea of list prices climbing.    What about price per square foot?   No good news there, either.  They are at the lowest point since the beginning of the year…

San Carlos 2010: Avg Price per Square Foot

Summary:  The What's and Why's.

What's going on here?   Well, the “what” is pretty well spelled out in the numbers above:  Homes are clearly selling for less in San Carlos over the past few months, and they're taking longer to sell on average.   This may come as a surprise to many, since we seemed to be on a bit of a rebound earlier in the year.  In fact, many assumed we had reached the bottom of the market late in 2009 and were climbing out of it.   But that's simply not the case, as you can see above.

The “why” is not so easy.   Interest rates are still at historical lows, and consumer confidence appears to be on the upswing.  Even major employers are cautiously optimistic on hiring for next year.    So one would expect to see more bullish reports in the real estate market here?   One bit of good news is that significantly more homes will have sold in 2010 than in 2009 in San Carlos, thus reversing a two-year slide.   So homes are indeed selling… just not for as much as they used to.

It's important for sellers to recognize this “correction” phase that the San Carlos market is going through right now, because it will absolutely change the way you price your home if you plan on selling in the next few months.

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  1. Arn on December 15, 2010 at 11:11 pm


    excellent analysis…..

    as active agents, our gut feelings often tell us how the market is doing – the mood of the agents in the office, how many conference rooms are occupied, how many agents waiting in the lobby to present offers, are the phones ringing? open house and broker tour traffic – all give us indications but it is always good to get the data too.

    the market has slowed slightly in Menlo Park and Palo Alto too.

    it is clear our economy is not out of the woods yet.
    people are still being laid off – see Yahoo for example.
    unemployment rate is basically unchanged.
    companies in general are still not hiring.
    salary increases if any are small.

    so my sense is the San Carlos market is just a reflection of the economy.

    the economy is OK, we hope the worst is over, but we don’t know for sure. to expect any large positive change in the short term is probably just wishful thinking.

    many friends and clients have asked about my sense of the RE market moving into 2011.

    i tell them – more of the same, RE market will continue to muddle along – that i don’t expect any big move up or down…..

    will be interesting to see what happens March April 2011…..

    i do not believe anyone can predict the mood of the buying public down the road, we will just have to wait and see.

    in the current market, buyers need high motivation to move.
    for example, i just helped a family of 4 that home schools move from an 1100sf house on the coast to a 2700sf in Almaden Valley. for this family, there was a pressing need for a larger house. buyers who have less motivation may just sit out until the economy turns.

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