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Monday, April 9, 2012

Median home prices in Santa Barbara County down 61% from the peak

Yes, you read the title correctly, the median home price in Santa Barbara County has fallen from a high in July of 2007 of $878,124 to the current (February 2012) $345,000, or by 61%.  Those who refuse to believe the obvious will argue that the median price for the county includes the north county, which has experienced a much more severe drop in prices that the south county, which includes the city of Santa Barbara.  True enough, but the peak median home price in July of 2007 also included the north county!  Detractors may also argue that because we are a smaller area, the number of home sales can skew the results.  True again.  However, we have to look at the long-term trend, and looking at the decline in median home prices, it is more than clear that prices have been absolutely pummeled from the 2007 peak until now.  Further, it is clear that we are not experiencing a bottoming process.  We are still declining, despite some fairly significant fluctuations on a month-to-month basis.

I do not think we have seen the bottom yet, specifically because the economy has not really recovered significantly, and most importantly, because interest rates are still historically very low.  When (not if) rates go back up, prices will be forced down further to reflect affordability and the continuing unwillingness of banks to lend.  Rates in the 7%+ range will force prices down at least another 20% from current levels.  We won't see rates climb back to that level for at least another 18 to 24 months, so we will not see a bottom in real estate prices until sometime after rates move up and then flatten out.  Real estate cycles take many years to play out, and we are still in the early stages of the boom to bust cycle.  I expect the bottom to happen in 2014, to take a year or two to form, and then a slow recovery for prices should commence, probably starting in 2016 or 2017.  

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