Home Buying in Santa Barbara>Question Details

gaurav811, Home Buyer in Goleta, CA

Santa Barbaba bubble

Asked by gaurav811, Goleta, CA Sun Apr 21, 2013

Is there a buble in the making in Santa Barbara / Goleta property prices ?

I remember condos were around 350-450s and single family homes were around 500-650 depending on school districts. Prices have moved up atleast 150k in just 6 months.

Now all condos that come to market are around 550-600 and single family homes start around 650 and above.

Whats going on ? How long can this continue ?

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Answers

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It's a tough market for buyers currently, I completely understand your concerns! Prices are on the rise because property inventory is low and buyers (ranging from 1st timers, 'move-up' buyers and investors) are flooding the market, thus competing on the few homes available.

If we are to see a leveling off of prices, supply and demand need to balance out - which means more homes for sale. It's possible this could happen in the next few months as summer is usually a time when homeowners decide to sell before the next school year, but unfortunately only time will tell!
1 vote Thank Flag Link Sun Apr 21, 2013
People`s income hasn't increased as much as the property prices have jumped. Median income of a household in Santa Barbara city is around 71k. So with that income after taxes one can earn around $5100 per month. Banks prefer to lend not more than half of your after tax income.

This would allow a homebuyer to afford a mortgage payment of $2500. With 20% down this allows a homebuyer to afford a home worth 520k with 30 year fixed and 3.625 interest rate.

So basically half of the people in santa barbara now cant afford to live here. If this continues this place will become a home only for the rich.
1 vote Thank Flag Link Sun Apr 21, 2013
What do you call someone waiting for prices to come down? Ans: a renter. In a few years, current prices are going to seem cheap to what they will be.

How are these prices sustainable? Ans: by people with a lot of wealth buying in a highly desirable area.

The proof is in the pudding: houses come on the market and are bought. Wait until the economy really starts to gain momentum.
0 votes Thank Flag Link Tue May 28, 2013
Ok, if the supply and demand laws are at work then by the same logic as the prices rise more supply should come to the market and drive down the prices. The rise in prices has already reduced affordability in Santa Barbara. As the interest rates rise it should even further reduce affordability.

I don't see how the prices can be supported at these levels unless the days of lax lending with 0% down, teaser loans etc. come back.

I'll wait for a correction.
0 votes Thank Flag Link Fri Apr 26, 2013
Yes, that's one part of the equation; and the key word is 'should', but it's not to say it will, necessarily. You have to look at what drives the Supply and Demand, and there are various factors to the equation. For instance, the folks who bought cheap in California and sold at a high profit when the market was in the boom, 5,6,7 years ago. The majority of these people moved and purchased in cheaper states, for example, Texas and Arizorna and drove the housing prices up and created a boom in those States, as a result. Where do you think these same people are moving to next? They’re coming back to California, of course, where it’s more affordable again. So, as the Supply increases, so will the Demand.

Another key factor to look at would be all the homeowners who have been foreclosed on. These people can not purchase anytime soon; so they have no choice but to rent. This is why the rental market is so strong and current homeowners and the banks see the value of holding on to the properties, now and for sometime to come. The investors have begun to see the same value and therefore are flooding the market on the buyers’ side.

And as far as Santa Barbara is concerned, there are other factors to the equation, which indicate to me, the prices will continue to be on the rise. This would be my educated calculation as to what is to come and where the market is heading.

G. Brown
*U.S. HOME REALTY, CRB*
Office: (805) 845-4553
Flag Sat Apr 27, 2013
It's called 'Supply and Demand'. The Inventory is low and thus resulting in multiple offers on properties. This is happening in almost all of California, but more so in more desirable areas, such as S.B. This is here to stay for awhile to come.

G. Brown
*U.S. HOME REALTY, CRB*
Office: (805) 845-4553
0 votes Thank Flag Link Fri Apr 26, 2013
It is as if March 1, 2013 the fund managers and investors said,"we are at the low of all time fellows, go out and buy!"
These are not homebuyers who can afford their first home with the help of low interest rates, these are sophistcated investors who offer all cash and over the list price in polished ways. For example, the home is for sale for $475,000 and REO, there are multipe all cash offers. The one that gets it is offering $502,000 and that is the one that is accepted over the other all cash offer for $500,000, because it is a bank and judged on the amount of cash offered.
The banks lose at least $200,000 on every short sale, they are now on the market at the all time low and the investors are picking them up. Why? Hyper-inflation has hit and the markets can not be trusted, but real property floats with the currency and will hold its value.
So, the bankers lost the money and the bankers are picking up the loss and holding it for awhile with a rental income and then making the money back again. It is a formula for big business to keep making money.
0 votes Thank Flag Link Wed Apr 24, 2013
Months of supply number doesn't really help as it doesn't take into account the price range. For example if the current supply of homes are all above million dollars........and there are no homes under 600k price range.......then the months of supply number should be 0 for that buyer. I wish they tracked the months of supply figure in price brackets

I agree that the foreclosure settlement and loan modifications are artificially allowing the people to stay in their homes with even with negative equity.

All the government stimulus has done is to benefit homeowners at expense of homebuyers. Homeowners get tax deduction for interest payments and property taxes. If the property prices fall they get loan modifications and refinancing at lower rates.

What do renters get ? This is so unfair.
0 votes Thank Flag Link Sun Apr 21, 2013
Hi

It is not so much a buble as it is the end of a downward cycle of foreclosures and reos dumped on the market each cheaper than the last started in 2006 to about mid 2012 causing an over supply of homes.

After the robo signing scandal many banks put a freeze on foreclosure and the increasing supply of cheaper homes stopped. Then the 25B settlement and the govt pressuring banks to do loan mods as well as no new home building caused a further shrinking of inventory.

Cycles run about every seven to ten years and we just did a six to seven year down cycle followed by about a year of an up cycle.

I have bought and sold property in Santa Barbara for myself and others. Perhaps I can help.

My advice is get it while you can.
before it goes any higher. A bubble usually pops when no one can affod to buy and with these interest rates there is an over supply of ready buyers and little inventory.

Good luck.

Al Goldberg Broker
805-797-3862
0 votes Thank Flag Link Sun Apr 21, 2013
What a good question! Yes, values in Santa Barbara are on the rise, but from the news and sources we have, indications are that values are rising on a national scale. We have clients and affiliates in San Francisco and Los Angeles that have confirmed experiencing similar markets to what we are seeing in Santa Barbara. A resent article in the Wall Street journal (Home Prices Rising in More Markets - Feb. 11, 2013) quoted "The National Association of Realtors [stating] that the U.S. median home price rose 10%". More recently watching WSJ live It was presented that market gains of 10%+/- in real estate were experienced on a national level (I do not have the source to quote on this item). Simply put we are dealing with a supply and demand equation. Low rates are helping to boost demand which, based on our March numbers, demand is out pacing supply. Our market at the end of March had 4.4 months of supply.

We often come across the question; what is the market supply? We also find that this is a statistic not commonly followed. To understand this stat, it is important to define the parameters of how our industry calculates and measure supply. Supply is measured in time, that is to say, how many months can we sustain the current sales pace, if no more listings were to come on the market. So to calculate supply we take the total number of primary residential active and pending MLS listings divided by the 12 month average of monthly closings. According to the National Association of Realtors, a housing market with 6 months of supply represents a balanced market. Having more than 6 months of supply would represent a Buyer’s market and having less than 6 months of supply would represent a Seller’s market. Based on our March numbers we currently have 4.4 months of supply, indicating we are in a Seller's market.

So are we in a bubble, that will depend on the factors which are creating our current level of demand. As long as it makes sense for buyers to buyer, either for investment or occupancy the demand will continue with out an increase in supply. Demand can slows for a variety of reasons, interest rates, consumer confidence, or cash flow being the most likely reasons. The timing for this to continue is unclear, but I would suggest that if it makes sense to buy, buy. If it makes sense to sell, sell. Only you can answer what makes sense for you. You should consider your cash flow vs. benefits of owning to conclude what makes sense for you. For example, I am in a position personally where it makes sense to purchase another property for the tax benefits. For me purchasing another property will save me money. My situation would therefore contribute to demand and sustaining a sellers market.

If you would like market stats, please visit our website, we update our Stats ( Market Action Report) every month. If you would like to discuss if buying or selling makes sense for you? I would be happy to review your situation with you and be of service.
0 votes Thank Flag Link Sun Apr 21, 2013
The number of properties sold in Santa Barbara have increased every month for the last 21 months. As the distressed sales, which have kept the average price to a low level for so long, are mopped up, so the real market emerges. Despite tight borrowing conditions, the market has improved, and continues to do so, at all levels.

How long can this continue? Get out your crystal ball!
0 votes Thank Flag Link Sun Apr 21, 2013
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