Real Estate Insight: It’s a Real Estate “Smidge,” not a Shift

If you have been watching real estate over the past two years, you know of the extreme appreciation in home values for San Luis Obispo County as well as the “low inventory” challenge for homebuyers. In the last few weeks, news outlets have been reporting a shift in the market and the beginning of a possible downturn for real estate, based on the increase in interest rates, inflation, and buyer pullback. Let’s take a deeper look at the real estate market for Cambria, Cayucos, and Morro Bay as news outlets love to report on the negative.

First, we need to acknowledge real estate is dynamic, it is not a static industry. Every day someone needs to sell, and someone wants to buy. What happened yesterday may or may not happen today. With that information, real estate professionals look at data from the past and formulate what is expected to occur based on past trends. However, we know one outside factor can skew data. October 2019 was the highest in sales volume for years in our local market. Sellers were happy and buyers were a bit anxious they bought at the height of the market. Then in March 2020 the pandemic shut down occurred. Sellers pulled their homes off the market in fear of dropping prices. Many agents went into hibernation as they figured their business for 2020 was gone. But what really happened? The real estate market roared back in the summer and went faster and higher than anyone thought possible. And it didn’t stop. It continued through 2021 and reached a high point this year. This upward trajectory was not predicted, in fact real estate was expected to level off in 2020.

So here we are mid-year in 2022 with the media announcing the market is dropping, and sellers missed out. Is that true? It is a seller’s market which means the advantage is still on the seller’s side. What happened in the last few months is we reached an all-time high in price with the shortest period of time on the market. But now there seems to be a bit of a smidge (not a shift but a smidge) of how long it takes a home to receive its first offer and we are seeing some listing prices being adjusted downward.

Remember what I said earlier – real estate is dynamic and past data is used to predict. Sellers today are looking at what happened with their neighbor’s house in February and March and applying that information to their expectations. Inexperienced agents are using that same data in talking with their sellers and listing their homes at the ceiling price. When the market is moving at a fast rate, the data parameter needs to match and be tightened to get a better view. As the smidge occurs with buyers taking a bit longer to decide whether to write an offer and seeing more opportunity without the extreme bidding wars, seller expectations need to be set. Relying on what happened in January, February and March data is not going to work for the June seller in regards to pricing and days on the market.

What is funny is consumers – and agents – have a perspective today that two weeks on the market means something is wrong with the home or that it is overpriced. We quickly got accustomed to the high velocity of the market where offers came in within 48 hours and now we need to readjust a bit. Great offers are coming in but I’m seeing it may take a home 7 to 10 days before an offer is received. Also, homes priced at or just below current value are receiving multiple offers, perhaps not as many as 8 to 10 as previously, but 2 or 3 offers for a seller to consider is a wonderful position to be in.

We are also not looking at overall appreciation in home values. Sellers may be thinking they missed out. Even if a seller missed the early 2022 rush, they are still ahead from a year ago by a considerable percentage in home value appreciation:

Home values would need to fall 20% or more in Morro Bay and over 35% in Cambria and Cayucos to see a loss of appreciation. San Luis Obispo County is highly desirable, and we see buyers every day wanting to purchase a home here on the Central Coast. Especially for those areas that are affected by a building moratorium or other building restrictions, the resale home market will continue to stay strong as there are no other options such as new builds. This smidge is helping buyers who can now take their time and be able to see a home in person versus only online before writing an offer which means fewer canceled escrows.

If you are considering selling or purchasing, you want an agent who not only has your best interests but also knows how to pivot with the market and helps you do the same to make the best decisions.

Leslie Dougherty, Broker Owner Central Coast Sotheby’s International Realty, 743 Main St, Cambria – 805.423.2279