The May 2024 Recap: San Carlos Real Estate.

The Spring Market is Over.

The end of May marks the end of what we traditionally define as the Spring real estate market here in San Carlos. In a typical year, the Spring market is characterized by the most amount of sales activity and, consequently, the most number of sales in any period of the year. The period that comes in second place is the Fall market, which runs from the end of August until the beginning of November.

There are some experts that are predicting that this model may actually flip-flop this year for the nationwide market, with 40% of the annual sales occurring in the Fall compared to only 25% in the Spring. Why? Because high interest rates have effectively throttled what is usually the most active time of the year, and these experts believe that once rates finally start to recede later this year, this pent-up demand is going to cut loose like coiled spring (no pun intended).

It's not easy to predict the future, but looking at the past is pretty easy and the first half of these expert's predictions aren't too far off. As I like to say, the data always tells a great story.

The Numbers.

If you were to summarize the San Carlos real estate market for the first half of 2024 into three bullet points, this would be these:

• High Prices.
• Low Inventory.
• Fewer Sales.

If you take away nothing else from this post, those three bullet points hit it square on the head. Let's first take a look at the total sales revenue for all properties in San Carlos (single-family homes, condos and townhomes) below:

This chart shows the total sales dollars for all properties in San Carlos from January through the end of May for the past 5 years. While you can see some improvement over 2023, the results are pretty anemic when you consider it's only slightly higher than the pandemic period in 2020 when we weren't even allowed to sell homes for the better part of that period.

It will be evident why the total sales volume in San Carlos remains low from the data below.

Single-Family Home Stats.

While the previous chart account for all home types in San Carlos, the remainder of the data analysis below is only for single-family homes because they make up 84% of the total market in San Carlos and the activity in the other 16% of the market doesn't move the needle enough for the purpose of this discussion.

Speaking of single-family residences, if there's one chart that underscores why home prices are skyrocketing in San Carlos, here it is:

This is a new chart that I whipped up, and boy does it tell a story. It shows both the number of new single family listings along with the number of closed sales side-by-side for the past 5 years, and the data is stunning (this is what I mean by a market that has been absolutely throttled).

Some key takeaways from this a chart:

• The 114 new listings in 2024 from Jan-May is the lowest for that period on record. Ever. There were even more new listings during this period when we were shut down for COVID.
• The number of new single-family listings in San Carlos has been on a 4-year decline, dropping an astounding 30% from 2021.
• The 87 closed sales during this period was the second-lowest total in 14 years. You'd have to go all the way back to the Great Recession to find a beginning of a year that had fewer closed sales than in 2020, 2023, and 2024.

The most basic essence of the law of supply and demand tells us that if the demand for something is greater than the available supply, then prices for that product will rise.

And they sure have.

This is another new chart that hasn't been seen on the blog before, and it shows both the average and median sales prices side-by-side for the past 5 years. The average and median sales prices of $2,540,403 and $2,450,000, respectively, were the second highest registered all-time for this period in San Carlos — only surpassed during the peak of the market in 2022 when interest rates were still around 3%.

So if you believe that home prices are continuing to climb in San Carlos, you now have proof.

Why Is This Still Happening?

When you look at the numbers above, the reason there are so few listings and closed sales this year is not the fault of the buyers.

When rates first started their meteoric climb back in the latter half of 2022, buyer fled the market in droves. The 7% threshold felt like the market hit a brick wall. But as rates rose to near 8% and then started to slowly drop back down, most of those buyers came back to the table — albeit with smaller budgets. But at least they were there.

The same is not happening with sellers.

We've talked about this in detail before on the blog, but the three main reasons that fewer home owners are putting their homes on the market are:

• Interest rates
• Property tax increase
• Capital gains liability

According to this article in Yahoo Finance, 82.4% of homeowners have a mortgage rate below 5%, while 62% are below 4%, and 23.5% of homeowners have a mortgage rate below 3%. Many sellers who need to acquire a new mortgage for their destination home are balking at giving up the ultra-low rate they locked in.

If the seller is not yet 55 years old, they cannot take advantage of Prop 19 and carry their favorable property tax basis with them when they move, thus introducing yet another significantly higher expense.

And finally, the specter of capital gains tax liability remains a big reason why people are staying put in their homes, often until they die, rather than cut the federal government a fat six-figure check when they sell their property.

What's Ahead?

As I mentioned at the outset of this article, some experts are predicting that more homes will sell in the second half of this year than the first. While that seems like a pretty low bar considering how few homes have sold thus far this year, I don't see this happening unless there's significant relief in the one factor that can change – interest rates.

Those same experts predicted there would be 3-5 cuts in the Federal Reserve rate this year, and because of stubborn inflation numbers, there has yet to be a single one. It's now looking like after the election in November before the first rate cut may happen. And while the Fed rates and mortgage interest rates are not directly linked, mortgage rates will remain high if the Federal Reserve doesn't reduce their rates more aggressively.

And that means just more of the same throttled market that we're seeing now.

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