Fueled by a stronger economy and high demand, San Luis Obispo County’s median home price and sales continue to make gains, albeit at a slightly slower pace than in recent years.
The overall median price, the midpoint at which half of the houses sold for more and half for less, increased 6.8 percent to $470,000 in August from $440,000 in the same month a year ago, according to CoreLogic, an Irvine-based data company. Home sales are also on the rise, with the total number of homes sold — new homes, resale single-family and condos — up 12.2 percent in August over the same month last year. A total of 405 homes were sold in August 2015, compared with 361 units in the same month a year ago, CoreLogic reported.
The California Association of Realtors, which provides data on existing, single-family detached homes, reported a median home price of $512,890 in August, up 8 percent over August the previous year. Home sales were up 14.2 percent over August 2014, the association reported.
Jordan G. Levine, economist and director of economic research at Beacon Economics, a firm that conducts real estate market analysis, noted that the demand for purchased homes continues to rise “as the economy has healed and interest rates have remained low.” He explained that the market is growing at a slightly slower pace than in 2012 and 2013, when accelerated growth rates were “largely a function of the market over-correcting on the way down.”
Local real estate agents note that there are two distinct markets in play, with sluggish sales for higher-end homes pulling down both median price and sales volume. Dennis Allan, owner/broker of Allan Real Estate Investments in Arroyo Grande, said that many of the pricier homes are sitting unsold for a year or more because of high-end buyers who are “very price conscious.” Lower-priced homes, on the other hand, are seeing brisk sales and rising prices.
The dividing line between high-end and entry-level differs among each community, with homes in San Luis Obispo and along the coast priced comparatively higher. Jim Liptak, broker associate with Patterson Realty and former president of the California Association of Realtors, said homes in the North County priced in the $350,000 to $500,000 range have “good velocity and a lot of activity,” and are selling at approximately 96 percent to 97 percent of their asking price.
On the other hand, Dawna Davies, owner/broker of Davies Company Real Estate in San Luis Obispo, noted that homes under $1.5 million in San Luis Obispo are not only selling quickly, but those in the $300,000 to $500,000 price range are “selling for an average of 120 percent of their asking price,” and those in the $700,000 to $1.5 million price range are “selling at an average of 97 percent of asking price.”
Few homes for sale causing ripple effects
What all communities have in common is a lack of inventory among entry-level homes — a situation that is driving up prices and may limit the number of overall sales. Two factors contribute to this condition. A major factor, said Liptak, is a strong rental market in the county, where there are “often 20 to 30 applicants for one home or apartment.”
Davies noted that high rents have a dual impact on housing inventory. More investment property buyers are snapping up properties to use as rentals. Also, tenants faced with rent increases may be “motivated to consider a purchase to better control their housing costs,” she said.
Also contributing to low inventory is a lack of new construction, a situation not likely to change given the current water shortage. The few projects under development were approved years ago.
“We’re seeing the result of a situation where there was virtually no new construction for 10 years during the (economic) downturn, and we’re finally seeing development again,” said Chris Richardson, managing partner of Richardson Properties. “A lot of these developments were planned 15 to 20 years ago and are finally moving through the process.”
Richardson Properties represents several new housing projects under development in the county.
Although there may be as many as 1,500 new housing units in San Luis Obispo over the next decade, Davies predicts “fast absorption of the new home inventory, and possible periodic lagging sales for existing resale homes, but an overall increase in prices of 3 percent to 7 percent per year over the next several years.”
Despite rising prices in the entry-level housing market, local real estate agents have observed an influx of first-time homebuyers looking to buy before interest rates rise. Leslie Appleton-Young, chief economist for the California Association of Realtors, predicts these increases will happen over the course of 2016 but will be “small and gradual.”
Many first-time homebuyers are finding the current housing market frustrating for a number of reasons that include intense competition from “investors and other first-time buyers for a limited amount of units,” Levine said. He also noted that, despite low interest rates, more stringent loan processes may make the housing market out of reach for some first-time homebuyers.
“While the price of the home may be affordable relative to income, most banks are requiring larger down payments than during the heights of the previous bubble,” he said.
Levine said that the largest issue facing the county housing market will be “bringing on new supply at a pace that is commensurate with population growth and demand.” He expects California population growth rates to remain steady, at 0.8 percent to 1 percent per year over the next several years.
Richardson believes that new housing will be necessary to accommodate this potential influx of new residents.
“We have to look at where growth can occur based on the general plan of cities, and hopefully those cities will work with developers to get them through the (approval) process so that they can have the necessary housing inventory,” he said.