Median home prices in San Luis Obispo County are within striking distance of their prerecession peak and could hit new highs within the year, according to a top regional economist.
The recovery in home prices has been a long time coming, Kleinhenz said, following fairly steep declines during the recession a decade ago. But the past few years have seen median price increases of 7 to 8.5 percent, driven by low interest rates, improved demand and limited supply.
If that trend continues apace, county home prices could see a new peak median around the third quarter, Kleinhenz said.
Home prices in San Luis Obispo County peaked early, he said, reaching a quarterly median of $581,700 in the fourth quarter of 2005, two years earlier than the state as a whole, according to figures from real estate information and analysis company DataQuick.
The latest figures available in December showed the median price at $537,200 for the third quarter of 2016 — a deficit of $44,500 that would be made up by the end of 2017 with continued 8-plus percentage increases, Kleinhenz said.
What’s more, he said, current prices are grounded in more solid fundamentals, rather than the artificial conditions and indiscriminate lending fueling prerecession home prices — and therefore are less susceptible to big drops down the road.
$537,200 Median home price in San Luis Obispo County for the third quarter of 2016
While sales haven’t been exactly brisk, Kleinhenz said, they’ve been steadily rising over the past few years, and there’s still a shortage in both new and existing homes relative to demand. The county currently has a 4.8-month supply of homes, according to the California Association of Realtors.
“It’s a fairly tight market,” Kleinhenz said.
At some point, however, affordability may begin to bite into sales. With decent job and income growth, affordability is better than it was a decade ago, with 25 percent of county residents able to afford the median home, compared with around 7 percent in 2006 and early 2007, according to the California Association of Realtors.
But mortgage rates are headed up, most observers agree, and inflation is expected to rise as well, putting higher home prices even farther out of reach for much of the county’s workforce.
“Even though SLO County is in great demand, the demand will soften as affordability narrows,” said Erny and Eric Pinckert, brokers and co-owners of the Central Coast Realty Group.
But momentum is building toward identifying and implementing ways government and developers can come together to increase the stock of affordable housing — something the Pinckerts say hasn’t been very successful in the past.
That effort is one of the most significant challenges facing the county in its continuing economic recovery, said Renier Dresser, a broker associate with NextHome Preferred Properties and 2017 president of the San Luis Obispo Association of Realtors.
“The challenges in creating more affordable housing in any significant proportion have become such a deterrent that it is simply not financially viable for developers to pursue these type of projects,” he said.
Some of the responsibility falls not only on local government, in terms of either ability to create or ease financial hurdles for developers through policies, but also the residents in their support or opposition to more affordable housing projects.
A handful of policy proposals and financing programs aimed at easing those challenges — several of which were developed by the Economic Vitality Corp., the San Luis Obispo Chamber of Commerce and the Home Builders Association of the Central Coast — are moving ahead at the county level.
And voters in the city of San Luis Obispo in November ushered in a new mayor and two new council members whose campaigns centered around the need to create more affordable housing.
Dresser argues that county residents play a role alongside government and developers.
“Some of the responsibility falls not only on local government, in terms of either ability to create or ease financial hurdles for developers through policies, but also the residents in their support or opposition to more affordable housing projects,” he said.
Whatever the outcome of those efforts might be, Kleinhenz said he expects heightened sales and prices at least though the coming year, though it’s difficult to predict beyond that.
Further easing of mortgage underwriting standards could shake loose further demand, he said, noting that the average FICA score for approved borrowers is still hovering around 750, meaning only the best credit risks are getting loans.
Sales of existing homes have continued to rise, and we’re seeing more new construction than we have in nearly a decade.
But supply could also get a boost. In recent years, existing homes have been slow to come to market, Kleinhenz said, though that could change as owners recover the equity lost during the downturn in prices. New construction is finally picking up as well.
“Most metrics of the market point to a healthy recovery,” Dresser said. “Sales of existing homes have continued to rise, and we’re seeing more new construction than we have in nearly a decade.”
In the city of San Luis Obispo, for example, new homes are popping up on the south side of town, Tim Townley, owner/broker for Comet Realty and past president of the San Luis Obispo Association of Realtors, pointed out.
“As the inventory increases, it should ease the price increases,” he said.
There’s another wild card, too, Kleinhenz said: an incoming United States president whose policies and their repercussions are so far largely unknown and unpredictable.
“Before the election, there was nothing out there that might trigger a slowdown,” such as inflation or oil price spikes, Kleinhenz said. “Now, there’s a heightened level of uncertainty.”
Sally Buffalo is a freelance writer in Pismo Beach. Reach her at firstname.lastname@example.org or on Twitter @sallybuffalo.