Santa Barbara Economy

1.0 Who’s Buying Homes in Santa Barbara County?

• In the second half of 2006, the percent of local buyers was 69 percent.
• About 13 percent of buyers originated from out of the state with 8 percent from eastern states, 4 percent from western states and 1 percent from foreign countries.
• Just over 15 percent of buyers were from other areas in California in the 2006 surveys
• The most frequent origin of the California buyer was the Los Angeles area, which accounted for 42 percent of total sales by buyers living in other areas of California. 
• Ventura County counted for 18 percent of total sales by buyers living in other areas of California.
•  Investment purchases declined to 9.8 percent of all sales in the 2006 surveys, from 15.4 percent in 2005. Second­ary home buyers increased to 13.8 percent, from 9.9 percent in 2005.
• The combination of investment and second home pur­chases represents 23.6 percent of all home purchases in the South Coast
• First time home buyers purchased 17.3 percent of homes in the 2006 survey.
• For condos, first time buyers paid a median price of $637,000, while repeat buyers paid a median price of $697,500. The difference in single family estate homes was more pronounced as first time buyers paid a median price of $928,250, compared to $1,329,000 for repeat buyers.
• For all of 2006, 54 percent of primary home sellers were downsizing,
• 43 percent of local sellers relocated within the local South Coast area in the 2006 surveys.

1.1 Who’s Buying in SB Summary

• The results of our sixth consecutive survey reveal the fol­lowing trends in the South Coast market:
• Primary home purchases are on the rise, while the combination of investment and second home purchas­es is declining. However, the change is gradual, rather than dramatic.
• Other areas of Santa Barbara County are not a signifi­cant source of buyers or a destination of sellers.
•  Less than 50 percent of sellers relocate within the local market, and the percentage has been relatively constant over time.
• Sellers continue to cash out by downsizing. In 2006, the percentage of downsizers jumped to a record high. 

2.0 Residential Real Estate

• Some of the most impacted areas in terms of price declines are San Diego County, Northern and South­ern Santa Barbara County, the Sacramento Valley, Palm Springs, Santa Cruz, and the Northern California Wine Country. However, none of these markets had an annual price decline in excess of 5 percent with most posting declines of 1 to 2 percent.
• The median selling price of condominiums declined 2.9 percent in 2006 to $659,000 for the calendar year. This was the first decline in annual prices since 1995 and broke a string of eight consecutive years with at least 14 percent appreciation.
• The median selling price of an existing detached home declined 4.4 percent in 2006, the first decline in prices since 1995. The median price for the calendar year was $1,195,000.
• Condo sales declined 27 percent in 2006 to the lowest level since 1996.
• There has been a redistribution of sales over time into the higher end markets, namely Montecito. In 1992, Montecito accounted for 12 percent of all sales in Southern Santa Bar­bara County. Last year, 19 percent of all sales occurred in Montecito. The Goleta market share has been declin­ing over time, falling from 34 percent in 1992 to 27 percent in 2006.
• In 1992, Montecito and Goleta both accounted for between $90 and $100 million in single family home residential
• transactions. They equaled 50 percent of the total Southern Santa Barbara County market, 26 percent in Montecito and 24 percent in Goleta.
• By 2006, transaction volume in Montecito had increased more than six-fold to $619 million, equaling 37 percent of the market. Goleta, on the other hand, had a transaction volume of $251 million in 2006, equaling just 15 percent of the market.
• According to the California Association of Realtors, the median selling price of homes sold in Ventura County increased 2.7 percent in 2006 to $686,300. That is the lowest rate of appreciation since 1996. In the prior seven years, annual appreciation ranged between 8 and 30 percent. 

3.0 Rental Market

• In 2006, rent appreciation exceeded home price appreciation
• In the city of Santa Barbara, vacancy rates remained below 1.0 percent all year long. In Goleta, average annual
• Vacancy rates have declined in each of the past three years from 6.0 percent in 2003 to 4.2 percent in 2006. Average rents rose 4.7 percent in Santa Barbara and 4.3 percent in Goleta.

4.0 South Coast Buyer Characteristics based on Loan Data from SBB&T

• In 2006, the median value for single family estate and condominium purchases requiring a loan made by Santa Barbara Bank and Trust was $922,500.
• The share of adjustable rate mortgages fell sharply from 2005 to 2006, but still fifty-nine percent of all loans were made with adjustable rate mortgages for the properties in the sample.
• In 2006, 81.5 percent of loans were made to existing residents of the South Coast.
• In 2006, 13.8 percent of loans secured were for non-owner occupied homes.
• The share of loans made for investment purchases fell dramatically in 2006. In 2006, 13.8 percent of loans secured were for non-owner occupied homes.
• The median household income of buyers purchasing single family units increased in 2006 to $150,000, from $135,000 the year before.
• Annual salaries in Santa Barbara County now average approximately $50,000 per worker
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• Not only are most single worker households are shut out of the housing market, but most two full-time worker households cannot afford the median priced home.The percentage of mortgage loans made to buyers who are self-employed rose over time, from 21 percent in 2002 to 41 percent in 2005. In 2006, it declined to 36 percent. 

5.0 2007 Real Estate Forecast 

• Higher mortgage rates and higher home prices impacted the demand for purchase housing last year. But since neither interest rates nor home values are forecast to rise sharply this year, sales of existing homes should not be affected any further. 
• We expect sales in 2007 to rebound slightly in both the north and the south, due to falling mortgage rates, and the realization by buyers that selling values are unlikely to collapse. Sales are forecasted to rise about 15 percent countywide. While this may seem strong, sales levels in 2007 would approach levels of activity that last prevailed in 1996.
• Regarding home values, a dramatic correction is still not expected in 2007. A slowdown in home price appreciation has been long overdue, and a drawn out period of home value malaise is likely to prevail in Southern California and elsewhere. However, downward price rigidity together with an otherwise healthy economy and a fully employed labor force prevents a material decline in home values this year.
• The median price of existing de­tached homes will remain close to 2006 values or decline marginally.
•  For Southern Santa Barbara County, selling values remain between $1.1 and $1.2 million due largely to continued buying within the high end of the market. The “affordable” market will decline between zero and five percent in 2007. In 2008, values rebound slightly, averaging 3.5 percent. In inflation adjusted dollars, appreciation is negative in 2007 and zero in 2008.
• For Southern Santa Barbara County, selling values remain between $1.1 and $1.2 million due largely to continued buying within the high end of the market. The “affordable” market will decline between zero and five percent in 2007. In 2008, values rebound slightly, averaging 3.5 percent. In inflation adjusted dollars, appreciation is negative in 2007 and zero in 2008
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