10/3/2011 11:25 PM
Rancho Santa Fe Real Estate: 2011 Third-Quarter Performance
While two points create a line, a third confirms it. This is what the third quarter of 2011 did for this year’s real estate trend line in Rancho Santa Fe. The first quarter started very promising, outstripping last year’s first-quarter performance. This brought about an excitement and energy that was a breath of fresh air to us all. But then in the second quarter that performance dwindled, flattening the performance to only equal that of the second quarter of 2010. Technically, at this point, we had a slowing market with the drop off from the first quarter. Yet, after such a strong first quarter performance, many of us were hoping to see the third quarter summer months redeem the second quarter’s stumble. Unfortunately, the results are in for this third quarter, confirming a weaker market than 2010 and a downward trend.
Overall, the number of properties sold in Rancho Santa Fe (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) declined in the third quarter by 24% compared to the third quarter of 2010, specifically 38 properties this year versus 50 last year. However, given inventory also came down 19%, from 188 properties to 158 properties, one could say that since the ratio of inventory-to-solds remained at approximately 8-to-1, the decline in sales was consistent with the amount of inventory on the market. They could even extend this argument by suggesting that the market has actually improved, since overall median value has remained relatively flat with a modest 3.4% decline while properties are selling 14% faster than they did a year ago. Yes, they could say this, but unfortunately when one looks at the submarkets that make up the foundation of this market, quite another explanation emerges.
Original Listing Price: less than $3 million
Of all the submarkets, properties with an original listing price less than $3 million declined the least when comparing the number of properties sold in the third quarter of 2011 with the same time period in 2010. Specifically, the decline was 16%, with 26 properties sold in 2011 compared to 31 the year prior. However, inventory also declined 16% creating an inventory-to-solds ratio of 6-to-1 for each year. Consequently, one may be led to believe that the supply-demand balance remained unchanged. However, when we look at valuation, median value declined 9% from $1,622,500 to $1,477,500. Furthermore, the median discount rate increased 109% from 8.57% to 17.91%. With an average marketing time of 230 days, most of the properties that sold in the third quarter of 2011 were originally listed when the market was more robust and supported stronger pricing. Later, market weakness caused sellers to discount their properties more than expected, creating the increase in the median discount rate and the decline in the median value. Moreover, when we see that average marketing time declined 12% for this submarket, from 261 days to 230 days, it is hard to infer this as a positive event when the number of sales is declining with price. A more accurate summary of this submarket’s third quarter performance would be that under declining sales and weakening values, sellers were more amenable to negotiating price with a buyer than wait for another to come around.
Original Listing Price: $3 million - $5 million
This submarket had the second largest percentage decline in the number of properties sold when comparing the third quarter of 2010 to the third quarter of 2011. In one year, sales declined 33% from 15 properties to 10 properties. While median value remained essentially unchanged at $2,800,000 and marketing times shortened 12% to 253 days, fewer sellers were attracted to this market than in 2010. New listings decreased 26% from 42 in the third quarter of 2010 to 31 in the third quarter of 2011. Between the reduction in the number of sales and new listings, average daily inventory for the third quarter declined to 82 properties in 2011 from 109 properties in 2010. Unfortunately, the inventory decline was not sufficient to match the decline in sales, driving up the inventory-to-solds ratio from 7-to-1 in the third quarter of 2010 to 8-to-1 in the third quarter of 2011.
Original Listing Price: $5 million or more
Of all three submarkets, this one had the largest percentage decline in the number of properties sold. Sales declined 50% when comparing the third quarter of 2010 to the third quarter of 2011. There were only 2 sales the entire third quarter of this year, compared to 4 during the same period last year. Of course, with only 2 and 4 sales, median values are meaningless, but when we look at the decrease in the number of new listings, clearly sellers are not attracted to this market. New listings declined 45% from 29 properties in the third quarter of 2010 to 16 properties in the third quarter of 2011. Between the decline in sales and new listings, average daily inventory declined 20% from 80 properties in 2010 to 64 in 2011. While this was a decline in supply, it was not enough to meet the decline in demand. The inventory-to-solds ratio climbed from an already high of 20-to-1 in 2010 to a staggering 32-to-1 in 2011. 4-5 times higher than the submarkets below it. Of course, with only 2 sales and an inventory-to-solds ratio of 32-to-1 market time is nothing more than trivia. Does it really make sense to talk about market time when there are only 2 sales and 32 other properties on the market for every property sold?
Copyright ©2011 linda sansone