What’s Happening with 3BR Home Prices in San Carlos?
February 27, 2013
The Bread and Butter.
If the reaction and blog statistics are any indication, then yesterday's post “The $1.3M Bombshell” really hit a nerve with many people in San Carlos. Between the comments on the post and the emails that I received, it's pretty clear that this particular home sale is symbolic of a real estate market in San Carlos that has left home buyers, home sellers, and even seasoned Realtors reeling.
This reaction is certainly understandable, because the 3-bedroom home configuration is really the bread and butter of the San Carlos housing stock. There are far more 3-bedroom homes sold in San Carlos than any other configuration; for example, over the past 5 years, the number of 3-bedroom homes that sold in San Carlos was nearly double that of the next most popular configuration, the 4-bedroom home. So it's not a stretch to say that the performance of the 3-bedroom home market in San Carlos can be seen as a bellwether of the market as a whole. And this is what has people freaked out right now.
By the Numbers.
It's always important in a volatile and emotional market like this to take a look at the underlying data to better understand what's really happening in the market, and to rationalize whether the market hype is well-founded. Below, I've included a couple of high-level charts that show the pricing trend of 3-bedroom homes in San Carlos over the past 5 years. One chart is based on average sales price, and the other is normalized on a price-per-square foot basis. Both charts tell an interesting story.
There are some interesting take-aways from this chart, but running away screaming from this market is not one of them! First, it's very important to note that the sample data in this particular chart for 2013 is for homes that have closed through January 31. So as the year progresses, you can expect to see this 35% delta in average sales price decrease somewhat as the sample pool gets larger. To prove this point, if you factor in all of the 3-bedroom sales to date in 2013, the average sales price is actually $1,208,221 — somewhat less than just the January numbers, but still a whopping increase of 29% over 2012.
Second, it's interesting to see how this number has been essentially flat from 2009 – 2012. Buyers who are lamenting not pulling the trigger sooner on their home purchase now have statistical data to drink to.
It's difficult to make a definitive statement about trends from just this single chart, because it doesn't take into account the size of the home – in other words, has the average price jumped because there's simply more larger 3BR homes that sold? One way to minimize the variance in square footage is to normalize the data, which is why we also look at the average price-per-square-foot, as is seen below:
(The same disclaimer about the 2013 sample size applies to this chart, as it did with the one on top). But what you immediately notice with this chart is that average price per square foot of a 3BR home in San Carlos is at it's highest level in the past 5 years. What's more, if you extrapolate back 10 years, it's the second highest figure recorded during that period — only 2007 had a higher average than what we're seeing so far in 2013.
But here's what's different from the first chart — the average price-per-square foot actually increases when you factor in the most recent sales in 2013. For all of the 3BR homes that have sold to-date in 2013, the average price per square foot is actually $625/square foot, not $612 as the graph has captured above.
And this number will likely continue to rise as more 3BR home sales prices are released in the coming weeks. Why? Well, suffice it to say that there are a number of 3BR home sales coming down the pipe that easily surpassed the $700/sq foot mark.
It's Official: Prices on the Rise.
So what did we learn with all of this analysis? First, it just confirmed what we all already suspected — that home prices in San Carlos are indeed on a very steep rise. And this rise can not be attributed to the possibility that it's just larger homes that are selling. Second, the direction the 3BR home in San Carlos takes will dictate much of where the rest of the market will go. It's the most common home configuration in San Carlos, and it's also the predominant target for first-time home buyers.
Lastly, until something changes to offset the imbalance of demand versus supply in the San Carlos housing market, don't look for this situation to change any time soon. But you knew that already…