The San Carlos 2018 Real Estate Year in Review.

2018: A Tale of Two Markets.

The behavior of the San Carlos real estate market in 2018, not unlike most real estate markets in the Bay Area, can probably be characterized by one word: Schizophrenic.  Depending on where you look, you will get two very different personalities.  If one considers only the typical year-to-year metrics that I normally track and compare them to past years, then the San Carlos market appears to have grown quite nicely in every aspect.  But when you dig a bit below the surface of these numbers, a very different and not so nice alter ego appears.

Just like in past years, the market started off with a roar in January, as the normal culprits fueled the growth in the market — low inventory, rock-bottom interest rates, and very high demand.  Consequently, during the first 3-4 months of 2018 homes were selling for record prices and in record short times.  It was certainly feeling like just another year in the crazy San Carlos real estate market.

But around mid-April the winds changed direction very noticeably, as buyers started to pump the brakes a bit on their market enthusiasm.  Home started getting fewer offers, and were taking a bit longer to sell.  This is not necessarily an abnormal occurrence in the Spring market — it just usually happens around June 1, not in mid-April.

Once the summer break ended in August, hopes were high for a reversal of the market's malaise, but that was simply not to be.  During the month of October,  53 listings hit the market — by far the highest amount of any month in 2018.  This tidal wave of pent-up inventory literally had the effect of pouring a gallon of water on a campfire – the ashes were still warm, but the market was a steaming, smoldering mess for the remainder of 2018.  Sales prices dropped, and the time it took for homes to sell grew at an astounding rate, if they even sold at all.  During the months of November and December, we saw the highest number of expired, cancelled, and withdrawn listings — all metrics that we almost never talk about in the San Carlos real estate market.

In the paragraphs below, I will break out a few of the key metrics that we track to assess the health of the market.  In each case, we will look at year-to-year growth, but then contrast that with the monthly trends as the year progressed.  You'll see some very startling trends…

Average Sales Price.

The average price for a single family home hit a record high in 2018 at $2,070,140.  Not only was this an increase of 8.8% from 2017, but it also marked the first time in history that the average sales price for a home in San Carlos eclipsed the $2M for an entire year.  Here is the average sales price tracked over the past 7 years.

From all aspects, this has the markings of a great year. This growth rate was right in line with previous years, which was already simply remarkable since it had been running near 10% annually for nearly a decade.

But when we break the year down by month, it tells a whole different story as to what was really happening in the market…

These numbers clearly demonstrate what everyone who was involved in the market clearly felt.  Starting from the peak price that we hit in June, the market started to cool in the second half of the year.  One would expect this in the typical slow months of July and August, but home prices never really regained footing at any point in the second half of the year.  In fact, the average home prices registered in November and December were two of the  lowest months of the entire year.

Average Price per Square Foot.

The average price per square foot (PPSF) of all homes sold in San Carlos in 2018 essentially mirrored the behavior of the average sales price above, which one would expected.  Year-over-year growth was a phenomenal 10%, setting an all time record of $1,106/square foot — eclipsing the $1,100 mark for the first time.

But just like the pricing analysis above, you get a much different story when the data is broken down by the month, as it is below.  From August onward, there was a steady decrease in the average price per square foot, hitting a low in the month of December.  The figure of $1,003 is actually lower than the average for all of 2017.

Days on the Market.

Another accurate indicator of the health of a real estate market is how long it takes the average home to sell, or the days on market (DOM).  For the past decade, we've grown accustomed to homes in San Carlos routinely selling in the first 7-10 days on the market, which is a remarkable statement about the strength of the market.   In 2018, it took an average of 15 days for a home to enter into contract once it was listed.  This was marginally higher than 2017, but still much lower than previous years.  This clearly shows that there was market demand in 2018:

Once again, when we dig a little deeper into the data, a different story emerges. The “October Effect” that I mentioned earlier in the post had a devastating effect on the market in the last three months of the year.  The effect of slamming an already sluggish market with 53 listings resulted in an exponential increase in market stay for many of these homes in November and December, as you can see below. As mentioned, a few of these homes did not sell and were withdrawn from the market for the holidays (a point that we'll touch on again in the summary.)

There was nothing remarkable in any of the other metrics that I normally track.  The total number of new listings in 2018 was only slightly up from 2017, and the total number of homes to sell was also nearly flat to 2017.   So it's not like a major injection of homes saturated the market.  Demand clearly fell of in the second half.

What to Expect in 2019.

We are heading into a new year with more financial instability and political unrest than in any period since the Great Recession.  As I write this post, Apple is experiencing its worst day on the stock market in 5 years, and the entire FAANG group of stocks is getting pummeled.  The government is in the midst of what may be a prolonged shutdown, and the trade war with China is making investors very nervous.  Add to that rising interest rates and fewer tax deductions for home ownership, and you start to understand why the market is feeling some downward pressure.  When consumers aren't confident, history has shown that they don't buy homes at nearly the same rate.

Nationwide, it has been predicted that the number of homes to sell in 2019 will be essentially flat to 2018, which is actually good news.  The rate of job creation in the month of December was higher than anticipated, which is also a good sign, and wage increases are now exceeding the rate of house price increases.  All of these are healthy stabilizers to a wobbly real estate market.  But despite the good news, the 2019 market will be different than what we've seen over the past decade in a few respects:

1. Expect that houses will to take longer to sell.  The trend that we saw in the latter part of 2018 was not fluke, and it likely won't be reversed overnight.  Buyers are simply more patient in the current market.
2. Home prices may settle.This is a natural byproduct when fewer buyers are making offers, and homes sit on the market for longer periods of time.  While prices will stay remain strong, I believe you will see fewer “nosebleed prices” than you have seen in prior years.
3. Preparing and marketing your home is now a necessity.  Buyers in this market want clean, turnkey properties.  It's no longer a luxury to put funds into your home to prepare it for sale — it will be a necessity to even get it sold in many cases.

What you need to take away from this is the following; The bottom is not falling out of the real estate market. We're simply heading back into what is considered a “normal” housing market. All of the fundamentals are all still sound — interest rates are still well below 5%, and there are still more buyers than there are available properties on the Peninsula.

If you're planning to sell a home in 2019, it is more important than ever before that you don't miss the mark in the preparation, marketing, and pricing of your home.  Overpriced and under-prepared listings will simply languish in the new market.  Make sure you align yourself with a Realtor that understands the nuances and inner workings of the San Carlos market, because you'll definitely need help navigating the new playing field.

And that's where I come in.