San Carlos Real Estate Update: October 2023

The Woes Continue.

The combination of high interest rates and economic uncertainty are providing a lethal 1-2 punch on the San Carlos real estate market. As I write this post, the Federal Reserve announced that while they are holding interest rates steady for this month, they are leaving the door open for a future increase if the economy does not respond accordingly to their actions. That means that while we are just getting accustomed to home mortgage interest rates in the high-7% range, we could see 8% in the coming months if they opt to tweak the rates upward again.

I've written numerous posts on this site about the impact that increasing interest rates and job layoffs are having on the local real estate market. Below, I've updated the charts to encompass the year-to-date stats ending October 31.

Revenue and Prices Down.

The graph below shows the total sales revenue for all residential properties sold in San Carlos this year — single family homes and condos. Much like the last update, the total for 2023 is significantly behind the same period in the previous 5 years.

The $547M in YTD total revenue is not only behind 2022 by 14%, it's also the lowest YTD revenue total since 2017 — 6 years ago.

The reason behind this drop off is obvious in the next 2 charts, both of which show a decline from 2022:

The average price for a San Carlos residential property dropped by 10% from 2022, and is even slightly below the price results for 2021. But because of the relative shortage of homes for sale, the average prices have performed better than the total revenue.

Taking a look at the average price per square foot of residential properties, we see a similar result:

Homes and Condos Invert.

What's really interesting to note with this data is that when I separated out single-family residences from condos, single family homes are performing markedly worse than condos. The average sales price for San Carlos single family homes dropped nearly 14% from last year, while the average price per square foot dropped 11%.

Compare this to the San Carlos condo market, which only dropped by 2.3% this year in average sales price, and the average price per square foot only dipped 3.4%. If you've followed the San Carlos real estate market for any period of time, you know that this is the inverse of the normal behavior when the market hits a snag; usually condos and townhomes suffer more dramatic price drops than single-family homes. But in 2023, nothing is normal.

One way this can be explained is that in the last few years, there have been a lot of high-end condos and townhouses have been built and sold, and those units are significantly more expensive than the older condo housing stock. This is especially true with all of the new condo construction in the downtown area of San Carlos.

What Lies Ahead?

We are heading into two of the slower months of the normal real estate year – November and December — so I don't expect these numbers to change much when I run this analysis at the end of each of those months.

But 2024 is really anyone's guess at this point. If interest rates remain high, you can expect more sluggishness in the market in the first few months of the new year.

One thing is for certain — there is NOT a lack of buyers looking for homes right now on the Peninsula. As before, there are more buyers than there are homes to put them in. But the high interest rates are making the dive into home ownership just that much more difficult. Once those rates finally begin to drop, the pent-up demand in this market should propel it forward like a slingshot.