Special Report: The San Carlos 2022 Year in Review.

A Tale of Two Halves

The year that was 2022 is finally behind us, and if you bought or sold a home in San Carlos, you're either very happy or perhaps very unhappy. The difference lies in when you bought or sold your home, because 2022 was truly the tale of two halves, and those two 6-month periods could not have been more different. But more on that below.

For 2022, the overall sales revenue for residential real estate in San Carlos (single family homes and condo/townhomes) dropped precipitously by nearly 30% from just the year before, and actually fell back numbers that we saw three years ago. That is a very significant negative inflection for a market that has been on a mad binge since the end of the Great Recession. It's especially surprising because the year started off with such great promise, coming on the heels of a record-setting $1.1B in total annual residential sales in San Carlos in 2021. It was first time in history that over $1B of residential properties sold in a single year, and every economic indicator was pointing toward a repeat performance in 2022.

This downturn is shocking to see, especially if you were involved in the absolutely white-hot market at the beginning of 2022. In the period of March-May of 2022, some of the highest number were being set for the average sales price and price-per-square foot in San Carlos. The market remained on a torrid pace carrying over from 2021. But when inflation reared started to rear its head and rates started to rise in June/July, you could literally feel the wind come out of the sails.

Consequently, the second half of 2022 was the polar opposite of the first half. The graph below takes the total sales revenue for both 2021 and 2022 and breaks it down by the first half and second half of each year. It tells you everything you want to know about what happened in 2022:

During the first half of 2022, the total sales revenue was roughly keeping pace with the record year of 2021. But once interest rates started to rise mid-year, the bottom literally fell out of the market. To put it into perspective, while the total revenue for 2022 fell somewhere between the 2019 and 2020 figures, the performance of the market in the second half of 2022 was the worst second half since 2015 — 7 years earlier! Metaphorically speaking, that's a market that hit a brick wall to the tune of a 38% decline.

Lower Prices, Fewer Sales

That heading explains exactly why the 2022 revenue fell off the cliff. The chart below tracks the average sales price for single-family homes in San Carlos for each month in 2022. After hitting an all time high of nearly $3.4M in April, home prices began a steady decline that lasted right through the end of the year. The drop between the peak in April and the floor in December was an eye-popping 42%.

As you might expect, when home mortgage rates started to rapidly climb, fewer homes were being purchased as buyers either got nervous about rates, or they were literally priced out of the market. By the end of 2022, only 234 single-family homes changed hands for the year (according to MLS data). That may sound like a lot of homes for a town the size of San Carlos, but that is the lowest number of homes sold in any year since at least 2006, and it probably dates back even further since the MLS records only go back to 2006. Even during the Great Recession years of 2008 and 2009 more homes sold than in 2022!

Another reason that fewer homes sold in 2022 is that there were simply fewer new listings to choose from. In 2022, 303 new single family homes that hit the market on the MLS. That's the second lowest figure in the last 16 years – only 2015 was lower with 267 new listings (and yet more homes sold in 2015 than in 2022)! Suffice it to say that if you had a home on the market in 2022 and it didn't sell, you weren't alone.

What Lies Ahead?

Unfortunately, the same economic conditions that turned the housing market on its ear in 2022 are still in play as we start the new year. The top three are:

• Higher Mortgage Rates
• Uncertain Employment Environment
• Low Consumer Confidence

The obvious downside to higher home mortgage rates is that the buying power is either reduced or eliminated for many buyers. But what's not as obvious, but just as important, is that it's also discouraging many sellers from moving. Most homeowners who have lived here for at least 5 years have likely locked up a ridiculously low interest rate back when the Fed rate was hovering around zero. Those homeowners absolutely don't want to trade their existing 2.8%-3% mortgage for a new 6% mortgage when they move, so many people are simply choosing to stay put until rates come down.

The second key factor outlined above is the employment situation. Numerous Bay Area companies are shedding jobs, and that makes many of these potential home buyers reluctant to jump into home ownership if they aren't sure if they're going to have a job in a few months.

Is there any good news in all of this gloom? Absolutely. For sellers, despite the negative trends pertaining to total revenue and homes sold, there are still more buyers out there than there are homes for sale. The home that I just sold at 873 Bauer Drive got multiple offers after over 200 people came through the only open house weekend that I held (and it was raining then, too). So there are definitely buyers out there, but they are just more picky and deliberate than in years past.

For buyers, the opportunities are more obvious. Prices have dropped over 40% in San Carlos this year alone, making homes that may have been previously out of the range of some buyers back into play. Yes, it will be painful to absorb the higher mortgage rates, but those will eventually decline as inflation is brought under control, thus allowing them to refinance the property. There's a saying that I hear quite a bit pertaining to home buyers in this market: “You marry the price, but you date the rate.” And that makes total sense. Smart buyers know that you can't change what price they buy the house for, but they certainly CAN change what they pay for it each month. And if you can lock up that house that was previously priced out of reach and ride out a year of expensive payments, the payoff will be great.

It's difficult to predict how long the market will continue in this mode. The first month or two of the new year will give us a great indication of price fluctuations and buyer interest. Keep tuned into the White Oaks Blog for the weekly sales data and other analysis that may help shed some light on where we are all headed in 2023.