Monterey County Real Estate Market Returns to the Fundamentals

“We simply couldn’t keep going at this rate,” said Sandy Haney, the chief executive officer of the Monterey County Association of Realtors. In fact, the number of home sales statewide fell for the fifth straight month in December, according to the California Association of Realtors.

The economics of real-estate trends are complex; there are many factors that influence both home prices and the number of home sales. Leading the pressure locally is the limited inventory of homes sales. Leading the pressure locally is the limited inventory of homes in Monterey County. A decreasing supply with a constant demand equals rising prices.

For example, at the end of November in Monterey County, the inventory stood at a little under 850 homes. A month later the inventory was down to 717 with the total number of sales remaining basically flat. The median price – half sold for more, half sold for less – stood at $469,900 at the end of December. A month earlier it was $422,000.

“Homes under $300,000 are flying off the shelf,” she said. “On one of these homes we had 11 offers.”
The reason sales in the higher end are slower and much more active in the lower range is the result of several influences, experts say. Interest rates have begun to edge back up, making larger mortgages more expensive. Also, a bevy of new laws that took effect Jan. 1 have collectively clamped down on loan requirements lenders must now follow. Qualifying for a larger mortgage is far more difficult today than in 2007.

In a normal market we are transitioning back into – a homeowner would build equity in her home and then sell it to move up to a more expensive property she’s been eyeing, Haney said. But when the market collapsed in 2008, so much equity was lost – trillions of dollars nationally – that prospective sellers either don’t have enough equity built back up or they are gun-shy about making the move.

“There is a lot of caution in the market,” Haney said. “The sellers that have been through the [2008] market and didn’t lose their homes are still uncertain if the time is right to move up.”
Exacerbating the inventory problem is the falling number of so-called distressed sales, including short sales and sales of foreclosed homes. After six years, the number of foreclosures is falling dramatically as they continue to work their way through and out of the market.

That’s also a reason area Realtors are forecasting a transition period in 2014 – moving from an unstable, irrational and unsustainable market to one that is governed by the basics and fundamentals.