When will the San Luis Obispo County housing market return to normal?
Although the U.S. economy is facing high inflation and a potential recession, local experts are taking a slightly more optimistic view of the future of the real estate market, where the median home price stood at $907,500 in May.
Housing prices have seen “enormous growth” in the past couple of years, Cal Poly finance professor Ziemowit Bednarek said, increasing almost 20% between the first quarter of 2021 and the first quarter of 2022.
Part of that growth, Bednarek said, can be attributed to the high demand for housing during the coronavirus pandemic, when competition among buyers expanded quickly and supply failed to keep pace.
However, Bednarek said, this year is likely to represent a slight stabilization in price growth.
“People seem to converge around the number 10% (in terms of annual cost increase), and then that’s going to taper off further in 2023,” he said.
However, that slowdown likely doesn’t indicate an actual decrease in housing costs year to year.
“We’re not going to see price reversal, home prices going back to what they were pre-pandemic,” Bednarek said. “That’s not going to happen, at least not anytime soon.
“I don’t think it ever will happen, actually.”
SLO County Realtor expects prices to continue rising
Richardson Properties Realtor Lindsey Harn agreed.
“I don’t see housing prices dropping,” said Harn, who’s been selling homes in SLO County for 12 years.
“One of the nice things about the Central Coast is we are a small enough market and we are kind of insulated,” Harn said. “So if there were a dip in prices to an extent, there’ll be a whole set of new buyers looking to fill in.”
With more people working remotely, many home buyers are flexible when it comes to location, she added.
Harn said she used to see prospective home buyers in their 50s and 60s “doing an early retirement where they’d earn the right to work from anywhere.”
“They’d come here (to SLO County) for the lifestyle and maybe commute once a month for meetings,” the real estate agent said.
“Now we’re seeing people of all ages” making that move, she said. “We’re seeing more and more people still want to have that choice to live and work from anywhere.”
Rising interest rates make mortgages more expensive
But SLO County is not immune to some of the problems facing the rest of the country, including high inflation rates and a critical housing shortage.
“For a while we’ve been observing low inventory of new homes,” Bednarek said. “Higher interest rates are not going to help with that. “When you’re developing a new, 1,000-home lot, you need a lot of credit to hire people to construct, to design. The credit is more expensive now.”
Developers still want build new homes, Harn said, but many are worried about keeping down the costs of existing home building projects. That, in turn, makes developers less likely to undertake the risk of starting building projects in a volatile market.
Bednarek’s assessment of the Federal Reserve’s anti-inflation measures, which include raising its benchmark interest rate by three-quarters of a percentage point, similarly indicates a shortage in available homes for the foreseeable future.
Along with continuing price increases and a shortage of available homes, both Harn and Bednarek predicted that mortgage rates were likely to continue rising from the current rate of 6%.
Bedrarek said this is due to the Fed’s interest rate hikes, which directly affect mortgages far more than they do, say, savings accounts.
Despite higher mortgage rates, Harn said getting into a home should be a top priority for buyers, with the knowledge that these rates could decline in several years.
“There’s a funny meme going around online: ‘Marry the house, but date the interest rate,’ ” Harn said. “Interest rates aren’t forever.”