Home Sellers find Buyers are standing tough
MARIA ZATE, NEWS-PRESS BUSINESS WRITER
November 10, 2006 7:53 AM
The shifting winds in real estate point to slower times ahead for the majority of home sales, while owners of commercial property are seeing a strong market, according to local experts.
Leading real estate experts offered observations about the status of the market, from homes to commercial properties to apartments, at a gathering hosted by the Santa Barbara Executive Roundtable on Thursday.
Dan Encell, of Prudential California Realty, gave his assessment of the residential real estate market in three price categories: homes selling at $2.5 million and below, sales of $2.5 million to $6 million, and sales of $6 million and up.
Homes priced at $2.5 million and below have experienced the most dramatic change from a year ago, he said.
This segment, which comprises the majority of home sales on the South Coast, has "shifted pretty rapidly from a strong Sellers market to a strong Buyers market," he noted.
Demand from Buyers has slowed considerably, while the number of homes available for sale has spiked in the lower price segment. With sales falling and more homes to choose from these days, Buyers see no reason to rush into an offer, so homes are taking longer to sell.
In his next category, sales in the $2.5 million to $6 million range, Mr. Encell explained that Buyers and Sellers are in a stalemate situation. Buyers are waiting for Sellers to lower prices, but Sellers have refused to budge. There's a 10 percent to 15 percent gap in the price that Buyers want to pay and what Sellers will sell for, he said.
The high end estates priced at $6 million and up are still experiencing a "strong Sellers market," Mr. Encell said, with some properties getting multiple offers.
For apartment properties, sales have followed the trend of the larger residential market. According to Craig Lieberman of The Apartment Specialists in Santa Barbara, apartment sales from January to November took a dive, falling about 90 percent, compared to the same period last year.
Buyers and Sellers are not seeing eye to eye on prices and neither side is apparently willing to give.
Harlan Green, president of Bankers Pacific Mortgage in Santa Barbara, said the direction of interest rates is providing good clues to the status of the economy.
Short-term interest rates are now higher than long-term rates, creating what is called an "inverted yield curve." Inverted yield curves usually signal a slowing economy, Mr. Green said.
While unemployment remains near record lows, job creation has slowed, he added.
The economy will probably remain slow for another 12 months, Mr. Green said, based on the actions of the Federal Reserve. The Fed has raised interest rates 17 times since June 2004, citing fears of inflation.
Rising rates have especially impacted homeowners with adjustable rate mortgages, causing their mortgage payments to increase. Because the number of people with adjustable loans comprises only about 5 percent of all mortgages, Mr. Green said he does not expect to see a jump in loan defaults, as long as the Fed holds interest rates steady.
In the commercial leasing market for Santa Barbara, considered a good indicator of the state of business health, the market looks solid and "is quite different than the residential market," said Francois DeJohn, of Leider Hayes Commercial.
Sale prices on commercial properties have increased by about 14 percent, and average rents have picked up 4 percent. Vacancies overall, at roughly 3 percent, are the lowest they have been in a decade.
Office space is still in big demand, with vacancies at 4 percent and average rent at $2.32 per square foot, Mr. DeJohn said. Industrial space vacancy is at 3.2 percent with average rent at $1.20 per square foot, while the retail market commands $3 per square foot on average and still has a vacancy rate of 2 percent.
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