Residential Real Estate Report: 2005/2006
2005- A Year in Review
After a strong start, 2005 fizzled in the 2nd half of the year. The most precipitous drop in sales came in the last quarter of the year. Real estate activity after the disastrous hurricanes mirrored that of the post September 11 market in 2001. Sales activity came to an abrupt halt for several months with the combined difficult market conditions of increased inventory levels, higher interest rates, and uneasy Buyers.
Effect of Higher Interest Rates
Mortgage interest rates, although still low by historical standards, are significantly higher than rates a year ago. This has had a noticeable impact on condominium and entry level home sales. After several years of meteoric price gains, it appears that the market for properties below $1 million has reached a plateau along the South Coast. This makes sense considering few new jobs are being created that would allow for home ownership, and
most existing residents who wanted to buy already took advantage of the lower rates over the past couple of years.
A Strong Estate Market in 2006
Despite a sluggish end to 2005, the estate market is off to a strong start in 2006 with several contributing factors: the stock market is at a 5-year high; baby boomers are in their peak income earning years, peak retirement years and peak inheritance years; miserable weather conditions in the East and South continue to drive wealthy Buyers to our area; and exceptional elementary schools are drawing wealthy families with young children to Montecito.
With a rapid flurry of sales, inventory levels are rapidly declining for estate properties, especially those above $10 million. This strong activity for high-end properties will significantly raise average prices for South Coast properties, so look for some impressive numbers starting in the 2nd quarter of 2006.