Rancho Santa Fe

Generally, supply is flat and demand is down in the Rancho Santa Fe real estate market (defined for the purpose of this analysis as all attached and detached residential properties listed with the San Diego Multiple Listing Service for the 92067 and 92091 zip codes). When comparing the first half of 2007 to the first half of 2008, inventory or the daily average number of properties listed for sale was essentially flat, 278 versus 288, respectively. Furthermore, the number of new listings was almost identical, 374 versus 372. However, demand or the number of properties sold fell dramatically by 32% from 117 to 80.

To better appreciate the dynamics occurring in this market, we segmented it into 3 groups by original listing price: 1) Properties less than or equal to $2.5 million; 2) Properties greater than $2.5 million and less than or equal to $4 million; and 3) Properties greater than $4 million. Interestingly, each group exhibited slightly different degrees of influence from the sluggish 2008 market and slightly different responses. There appears to be a bottom-to-up influence occurring as we travel up through the three price segments.

The first price segment, properties with an original listing price less than or equal to $2.5 million, so far, has taken the brunt of the storm. The number of properties sold has fallen 45% from the first half of 2007 to the same period in 2008. This has not escaped this segment’s sellers who have consequently conceded increasing the average discount from original listing price to sold price by 25%. This, along with original listing prices starting lower, has resulted in a 17% reduction in the median sold price. However, this segment was the only segment to reduce the number of properties available for sale and reduce the marketing times for those properties sold, clearly exhibiting a motivated group of sellers. However, this group also saw the number of new listing fall by 13%, exhibiting a population of potential sellers not willing to sell under 2008 market conditions.

As we move up to the next two price segments, we do not see this seller behavior dichotomy. What we do see is more of a sense of immunity, probably due to a relatively smaller drop in demand and a greater degree of financial wherewithal. Yet, this has not prevented some market weakness from occurring within these two price segments. For example, while the second price segment, properties with an original listing price greater than $2.5 million and less than or equal to $4 million, did not experience a 45% decline in properties sold like the first segment, it did experience nearly a 20% decline. The difference is that the first segment discounted prices more aggressively, causing a 17% median price decline versus only a 6% decline for the second price segment. However, while new listing fell and properties sold faster in the first group, new listings increased and properties sold increasingly slower in the second group, causing inventory levels to rise almost 20% higher in 2008.

The last and highest price segment, properties with an original listing price greater than $4 million, experienced a demand decline even greater than the middle segment. 25% fewer properties sold in 2008. Less price concession was given, but marketing times protracted. The only thing that kept inventory levels from rising was no change in new listings and a greater number of properties being taken off the market. Going forward, the question for interested sellers in this and the second segment is whether a slightly greater concession today is better than weathering out an uncertain market.

Del Mar

A quarter ago, we compared 2007 Q1 to 2008 Q1 and found the most conspicuous change in Del Mar’s real estate market (defined for the purpose of this analysis as all attached and detached residential properties listed with the San Diego Multiple Listing Service for the 92014 zip codes) was the reduction in inventory or the average daily number of listed properties available for sale. Today, in this edition of Premier, when comparing the first half of 2007 to the first half of 2008, the most conspicuous change is the reduction of the number of properties sold. Sales are down 45% and inventory has risen slightly over the second quarter. Consequently, marketing times have extended 30% since last year, bringing the average marketing time to 6 months. To better assess the market, we segmented it into 3 groups by original listing price: 1) Properties less than or equal to $1.2 million; 2) Properties greater than $1.2 million and less than or equal to $2 million; and 3) Properties greater than $2 million.

The hardest hit segment has been properties with an original listing price less than or equal to $1.2 million. For this segment, the number of properties sold has fallen nearly 60% with the average discount between original listing price and sale price increasing from 6.4% to 12%. This group also experienced the largest protraction in marketing timelines. Timelines increased 37%, going from 110 days to 150 days. However, none of this was lost on some sellers. In response to this segment’s market weakness, new listings fell by 18%, helping to push down inventory levels by almost 12%. Clearly, some sellers have found the reduction in sales to have created an illiquidity that could be temporarily distorting valuations, and thus opted to not list their properties for sale.

The middle segment, properties with an original listing price greater than $1.2 million and less than or equal to $2 million, also experienced a significant drop in the number of sales, falling 51%. While this reduction was less than the first segment, in some ways, this segment’s market is a little more precarious than the first. Unlike the first segment, inventory levels have increased 15%, creating downward valuation pressure when compounded by the significant drop in demand. Most likely, we’ll start to see the new listing trend for this segment mirror that of the first segment, as sellers opt out of a market they believe to have a supply/demand imbalance, thus potentially creating artificially low, temporary values.

The last segment, properties with an original listing price greater than $2 million, fared well, relatively speaking. The number of properties sold only fell by 12% from the prior year. Furthermore, helping to offset this reduction in demand, inventory levels have fallen by 20%. Nevertheless, this did not come free. The average discount between original listing price and sale price increased 50%, going from 14.5 % to 21.7%. It also took 20% or one month longer to find the buyer. Nevertheless, given the market environment, this segment’s market looks relatively strong, a factor mostly due to the uniqueness and rarity of the properties found within this segment.

What’s next?

When reviewing the data that we put together for Rancho Santa Fe and Del Mar, it is important to remember that these areas are comprised of sub-populations, some behaving much differently than others. For example, properties in Del Mar that are on the beach behave differently than some other areas of Del Mar. Likewise, horse property in Rancho Santa Fe behaves differently than some other types of properties in Rancho Santa Fe. What we have presented here is a total snapshot that blends these sub-populations together for the individual areas. We have also integrated the data to explain the individual real estate markets. In next month’s edition, we’ll examine La Jolla and Solana Beach/Encinitas.

Written by Linda and Tom Sansone
Willis Allen Real Estate
www.LindaSansone.com
Phone (858) 775-6356

0 comments so far...

Your name:
Title:
Comment:
Add Comment    Cancel