San Carlos Real Estate: Q1 2024 Recap.

April 3, 2024


Deja Vu.

Or as Yogi Berra reportedly said, “It's deja vu all over again“.

However you want to say it, 2024 is shaping up to be eerily similar to 2023 in a number of ways, which is not necessarily good news if you're a buyer trying to find a home in San Carlos.

It wasn't supposed to be this way. When mortgage interest rates started their meteoric climb in the second half of 2022, we all knew that 2023 was going to be tough year for the market and we expected the financial results to reflect this pain, which they did as outlined in my 2023 Recap.

But as interest rates started to drop in Q4 of last year, optimism sprung from the ground like the weeds in your back yard after the recent rains. Conventional wisdom was betting that the home sellers who were not selling because rates were near 8% would definitely choose to sell when the rates dropped below 7%. That's just not happening, and I'll tell you why below.

Here are some financial charts that show the performance of our market in Q1'24, compared to the previous 4 years. As always, the data tells a great story.

Revenue Up…Slightly.

The first chart shows the total sales revenue in the first quarter for all residential units — single-family homes, and condos.

The total sales volume in San Carlos rose by a respectable 16% compared to last year, but Q1 of 2023 was already the worst first quarter in the past seven years. This modest increase only makes Q1 of 2024 the second worst Q1 performance in the past eight years.

The revenue increase makes sense, because the total number of closed sales also increased slightly in Q1, as compared to the same period last year:

The 59 units sold in the first quarter is only slightly higher than last year, which we anticipated was going to be a trough in the data pool. But 2024's unit volume was still the second lowest in the past 8 years — just like the revenue.

Single-Family Home Woes.

Single-family home sales always dominate the statistics in San Carlos simply because there are far more of them than there are condos and townhouses. The two charts below will tell you just about everything you need to know about what's happening in the single-family home market right now.

Spoiler alert: If it seems to you like homes are just getting more expensive in San Carlos, you're correct.

The average sales price of a single-family home in San Carlos topped $2.5M in Q1 for only the second time in history. The first time was during Q1 of 2022, which we now regard as the historical peak year in San Carlos real estate.

And why are prices rising so fast in such a challenging year? Here's your answer, and it's not because of Realtor commissions, lol:

There were only 59 single-family homes that listed in San Carlos in the first quarter. That's the lowest first quarter number in…. well, forever as far as I can tell. I pulled records as far back as they go in the MLS, and Q1 2024 quite easily had the lowest total of new listings in any first quarter.

And that, my friends, is a graphic display of what happens when demand far outstrips supply.

You see, when rates dropped below 7% it brought buyers back out in droves, but not the sellers (see below for why owners aren't selling). That just exacerbated the imbalance between the number of qualified buyers and the number of homes for sale, which has led to double-digit multiple offers and breathtaking premiums over the asking prices.

Why Are So Few People Selling?

There are two key reasons why home owners are keeping their keys in their pockets:

  • Interest Rates. Yes, we know that home mortgage interest rates have dropped significantly since the peak of nearly 8% in 2023. But most homeowners who were awake 10 year ago locked in on sub 3% fixed rates, and those golden handcuffs are enough to discourage just about anyone from trading up to the current rates unless they absolutely have to (more on that below).
  • Capital Gains Liability: As home prices continue rise, so does the capital gains liability for anyone with significant equity in their home, which by the way, is a large number of homeowners in San Carlos. I ran a quick data mining exercise to find the number of homeowners who live just in the flats of San Carlos, are over 55 year of age, and have 80% or more equity in their home, and the results topped over 700 households — just in the flats! Many of these people are putting their retirement move on hold, even if it means being closer to family, because they simply can't stomach the thought of cutting a six-figure check to the IRS…regardless of how large the profit of their sale might be.

So who is selling right now? The “3 D's” still dominate the selling landscape in San Carlos: Divorce, Death, or Displacement. I list quite a few homes in San Carlos, and the vast majority of my sellers fall into one of these three categories. They're either getting divorced, they're trustees of a parent or relative that passed away, or they're being transferred elsewhere in the world because of their jobs. But even the people who can afford to trade their current mortgage for no mortgage (i.e. buy their replacement home with cash) are hesitating to do so because of the capital gains hit.

What I'm not seeing much of is the “elective” sale. This is where someone exchanges their smaller house and smaller mortgage for a larger house with a much larger mortgage while still staying in the area. The few move-up buyers that I see are only doing so because their current living situation is just not tenable, or if they are paying cash which makes them immune to the gyrations of the mortgage interest rates.

What's Ahead?

Q2 of any given year is usually the bellwether for listings and sales in any given year, and this year will be no exception. Most of the listings and sales happen in this coming quarter, and we'll likely know after that whether we're headed for another 2023 kind of performance, or whether the market is starting to climb up to the sales levels that we were forecasting last year.

Mortgage interest rates will have the most direct impact on whether more houses become available. If they continue to drop, look for a lot more activity in the coming quarters. If the stall out due to inflation, brace yourself for another year of tight home sales and increasing prices.

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  1. BLF on April 3, 2024 at 10:09 am

    Fascinating analysis!

  2. Chuck Gillooley on April 3, 2024 at 3:30 pm

    Thank you! As I said in the post, the data always tells a good story.

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