The San Carlos 2023 Real Estate Year in Review.
January 3, 2024
A Challenging Year.
Before I launch into my yearly tradition of analyzing the previous year's performance in the San Carlos real estate market, I wanted to take a quick second now that we're at the beginning of a new year to thank everyone for being loyal readers of the White Oaks Blog. 2024 marks 17 years since I created this site, and since its inception I've written nearly 2,000 articles about life and real estate in the City of Good Living. One stat that I'm particularly proud of is that 100% of the content on this site is written by me — not that every article I've written is a home run, mind you. But I've fielded many requests over the years from authors that want to guest write articles for the site, and I have stuck to my vision of keeping this site as my perspective life and living in San Carlos, and your vehicle to comment on the same topics. So a big thank you to those of you who continue to read the site and have contributed comments and feedback over the years. Here's to another year of great content!
Now, back to the data…As I forewarned would happen in my last monthly update, the San Carlos real estate market finished 2023 with more a whimper than a bark. Mortgage interest rates that started climbing in mid-2022 and economic uncertainty kept many buyers and sellers out of the market and put a serious damper on the regional real estate market for all of 2023.
Total Revenue Slides Downward.
The graph below shows the total sales revenue for all residential real estate in San Carlos, which is comprised of single-family homes and condos (land sales are excluded and are generally a negligible percentage of the overall number).
As I predicted pretty much all of last year, the total sales revenue in 2023 fell below the 2022 total — which as already off significantly from 2021. Here are some key takeaways from this data:
- The total revenue in 2023 declined by 12% from 2022, and is a whopping 38% below the record revenue milestone of over $1B achieved just two years ago.
- For those of you just interested in single-family homes, the revenue in 2023 dropped by a full 10% from 2022 and 38% from 2022.
- The $666M in total revenue is the lowest total registered in San Carlos since 2017.
Prices and Unit Sales Drop.
When overall revenue drops, it's either a function of declining prices, declining unit sales, or both. In the case of 2023 in San Carlos, it was both. The first chart below shows the average price of all properties sold in San Carlos over the past 5 years:
It's no surprise that the average sales price of all homes sold in San Carlos continued to decrease in 2023. When you pull that many buyers out of the market at one time, demand and competition for homes decreases. And Econ 101 tells us that when demand goes down, prices go down.
The next chart shows the total unit sales for the past 5 years in San Carlos:
It's a little surprising that the total number of homes sold in 2023 only dropped by 2% from 2022, especially if you remember that interest rates only started to rise in the second half of 2022. The market in the first half of 2022 was off to a raging start, but hit a brick wall in the second half as I discussed in this post. Here are some other interesting facts from the two charts above:
- While the average price of ALL residences sold in San Carlos dropped by 7%, the average price of single-family homes sold in 2023 dropped by significantly more, coming in at 12% below 2022.
- Despite the 7% overall drop in prices, 2023 still registered as the third highest year on record for home prices in San Carlos. Prices are only off by 5% from the record revenue year of 2021.
- The 311 units sold last year was only 2% below the previous year, but it's the lowest number of homes to sell in San Carlos in 15 years. You have to go all the way back to the Recession in 2009 to find a year when fewer homes changed hands.
- The number of single-family homes to sell in 2023 actually higher than in 2002…if only by 5.
What's Up For 2024?
This article was published on December 26 and predicts that home prices will drop in 2024; -6.1% is predicted in San Jose and -4.8% in San Francisco. I can't speak for those two markets, but I don't see the same happening in San Carlos. There are a couple of reasons why I believe this.
First, mortgage interest rates are dropping. After the shock wore off when rates passed 7% on their way to 8%, buyers started buying again. They adjusted to the new reality, and activity started to pick up again in the fourth quarter of last year. When rates drop, more buyers can enter the market. When more buyers enter the market, home prices generally go up because of increased competition.
The second reason is that there is a theory backed by many “experts” whose premise is that home prices are artificially high in the first place because of a shortage of inventory. That's just simply not the case in San Carlos. Home sales weren't down in San Carlos because there was no inventory. The average days on market (DOM) for all homes in San Carlos in 2023 was 21 days. That may not seem like a big number, but it's the longest average time to sell in 10 years. That means that homes were there for sellers to buy — but they just weren't buying them. But home values remained high anyway.
That doesn't mean prices will climb at an impressive rate either. I think that when we look back one year from now in this same report, there will have been a modest increase in home prices and a definite increase in home sales and total revenue. That means 2023 will mark the bottom of the most recent market slide and we are at the beginning of a slow but very real recovery.
It also means that if you've been holding off on buying a home in San Carlos, consider your wait over.
Comments?
Posted in:
One of the contributing factors to the Bay Area bounce back is return to office! Employers are generally allowing far less flexibility than 2020-2023.
For reason #1, that argument would also apply to SJ/SF.
For #2, if homes aren’t selling, isn’t it a sign the prices are too high? It might be there is a disconnect between what sellers and buyers think is the right price and the market stalls.
Thanks for your comment. First of, comparing a market like San Carlos (30k residents) to either San Jose or San Francisco (>1M residents) is a bit like comparing an apple to an orange. The Willow Glen neighborhood of SJ alone is 1.5x the population of all of San Carlos. There is a core set of attributes that has always helped maintain San Carlos home values: Schools, location, community, and affordability. Because of that, people often forgo other cities to be able find a home in San Carlos (the same mindset applies to Belmont and Burlingame). So while the massive markets of SJ and SF might indeed see further decreases next year, I’m betting that San Carlos is going to be flat to slightly up. Regarding your second point, pricing was indeed a big reason why buyers weren’t buying. But after sitting on a ton of open houses, it is also evident to me that buyers at 7%-8% had very little sense of urgency to buy — they were not shy about saying that. But if/when rates get back closer to 6%, that sense of urgency will return. In fact, I already started to see in an increase in showings (on the same stagnant) listings in November and December. The fact remains that there are still more buyers looking for San Carlos than there are homes to sell. Bear in mind that my prediction of home prices rebounding in San Carlos is conditional on rates dropping from their current levels (which is already in progress). If that stalls out, all bets are obviously off. Thanks again for your comment.
If you look at all the home construction around town it seems more people are choosing to stay where they are at for many reasons and then make their current space work better for them. I’ve been in SC for 13 years and while I would love to sell my small home and purchase a bigger one, there is no upside for me. Sure, I can sell my home for double what I paid for it, but unless I want to move to the far reaches of the Bay Area, or away from it/CA entirely, what will my money get me? I can by the same size home, in worse condition, and double my property taxes. I’ll stay where I am and remodel/add square footage. Not to mention that anyone who could over the last few years when rates were at record lows refinanced and don’t want to loose their sub 3% rate.
In terms of day on market, given the lower inventory this year, I would wonder if it could be a few outliers that are throwing off the average? Also, for the home that are taking longer to sell, what is their condition? Seems there have been plenty of homes this past year, including some very expensive ones that sold very quickly; what is the differentiator?
Lastly, what may end up helping inventory in the coming years are the changes to property tax laws last year when leaving your house to your kids.
All great questions. First, you are correct about the new construction. In fact, I did exactly the same thing back in 1999 when I outgrew my home on Howard Avenue. I looked around for a bigger house, but it just made more financial sense to stay put and build the home I wanted. The inconvenience of living through a remodel is another story for another day. But yes, your perception is correct — people are staying put to preserve property taxes and because they just like their neighborhood. Regarding days on the market, it’s a little bit of both. There were homes that sold quickly and some that languished for an abnormally long time (and some of those are still on the market). The overall lack of urgency with buyers in 2023 meant that homes that were priced too high or were in less-than-desirable locations took a lot longer to sell that they would in a hot market. But to your point, while the average DOM for all homes in 2023 was 24 days, the median DOM was only 10, which suggests that there were a significant number of homes that sold in a reasonable timeframe. And finally, you hit on the Prop 19 nerve — the part of the law that everyone is up in arms about is the parent-child transfer. There are serious efforts underway right now to overhaul Prop 19 for that reason. On the note of getting more inventory, the archaic capital gains exemption is long overdue for an increase. I’ll be writing about that next week. Thank you for your insightful questions!