Central Coast had one of California’s strongest housing markets in May. Will it last?

The San Luis Obispo County housing market appears to be leveling out after an opening to 2023 that saw median home prices dip as low as $775,000, even as active listings grew.

According to the California Association of Realtors May 2023 home sales and price report, the Central Coast — which encompasses San Luis Obispo, Santa Barbara, Monterey and Santa Cruz counties — was the only major region to see its median price increase last month, compared to the same month in 2022.

May also marked the first time in six months the Central Coast’s median price registered a positive year-over-year growth, the report said.

But while median home prices and sales in some areas rose, Realtors warned the local housing market could start to tighten even further for buyers who can’t pay top dollar.

San Luis Obispo Realtor Graham Updegrove said continued inventory problems are likely to be the “new normal” locally due high interest rates.

“Everybody that has a 3% mortgage, depending on what happens going forward, have little incentive to move,” Updegrove said. “There’s a fear factor built in.”

How did Central Coast housing markets compare in May?

According to the report, sales continued to fall in all major regions of the California housing market, though declines were less drastic overall.

With 23.8% fewer sales this May than in 2022, the Bay Area had the biggest sales drop in the most recent report, followed by Southern California with 22.3% fewer sales, the “Far North” — which encompasses Butte, Lassen, Plumas, Shasta, Siskiyou and Tehama counties — with 21.8%, the Central Valley with 20% and the Central Coast with 17.3%

The latter two were the only regions that recorded a drop of 20% or less from last year, according to the California Association of Realtors.

Meanwhile, median home prices and the number of listings and homes sold varied across Central Coast counties.

San Luis Obispo County’s median home price dipped 6.1% from May 2022 to $875,000. Median home prices in the county also fell $50,000 short of April’s median price of $925,000, the CAR report found.

The county’s active listings also fell 13.6% year-over-year to 292, but were up from the previous month’s 271 listings.

According to the report, 234 homes were sold in the county in May. While that was 1.3% lower than May 2022, it represented a significant jump from the 143 sales in April.

Neighboring Monterey County experienced a slight decline in median home price between April and May, CAR data showed, dropping from $953,000 to $902,000.

Home sales in Monterey County picked up, growing from 124 sales in April to 152 in May, accompanied by a corresponding bump in listings from 227 in April to 260 in May.

To the south, Santa Barbara County’s median price of $1.08 million in April similarly increased to $1.27 million in May, while active listings held steady from the market’s 227 listings in April, settling at 225 in May.

This was accompanied by a slight increase in home sales, from 134 sales in April to 143 in May.

Santa Cruz County experienced a relatively large jump in home sales in May, going from 74 sales in April to 120 the next month, even with a more modest increase in listings from 185 to 219 month-over-month.

Despite the high volume of sales, however, Santa Cruz County’s median home price held steady at $1.35 million month-over-month.

North County, North Coast housing markets stay steady as sales pick up

Following the trends of the county, the city of San Luis Obispo’s housing market saw growth last month, starting with a median price increase from $1.05 million to $1.12 million, according to the CAR report.

Active listings similarly saw a very slight increase month-over-month from 28 listings in the city in April to 31 in May, though the 31 homes that closed escrow represented a big jump from the 19 sales in April.

The county’s other major population centers also saw their housing markets largely hold steady.

Paso Robles’ May median home price of $685,000 was slightly higher than its $666,000 median price in April, but home sales climbed dramatically from 24 units sold to 52 month-over-month.

In Atascadero, median home prices fell slightly month-over-month from $809,000 in April to $808,000 in May. Listings followed suit, holding steady month-over-month from 30 in April to 31 in May.

However, Atascadero home sales also increased month-over-month from 22 to 28, the CAR report said.

Nearby Templeton continued to hold the top spot in terms of median home price, holding steady month-over-month from $1.51 million in April to $1.5 million in May.

Listings also slightly declined month-over-month from 15 to 13, while sales increased from six to seven over that time frame.

Meanwhile, Cambria experienced one of the more active months of any San Luis Obispo County city, as median home price exploded from $769,00 to $1.07 million in May, spurred by a jump in month-over-month sales from three in April to 11 in May.

Listings in the coastal town largely held steady month-over-month, increasing from 17 in April to 19 in May.

Down the coast, Morro Bay’s housing market remained one of the most consistent in the county by most metrics, with median prices climbing very slightly from $1.03 million in April to $1.08 million in May.

The city’s 18 active listings and nine homes sold were in line with the previous month’s 16 listings and nine sales.

Slightly further south, median home price in Los Osos saw a notable decline from $1.05 million in April to $810,000 in May, though home sales rose from eight to 12 over that period.

Median home price drops in several South County cities

Meanwhile in the South County, median home prices fell across much of the area.

Month-over-month, median home prices in Grover Beach were cut nearly in half, plunging from $1.46 million in April to $752,000 in May, despite the number of home sales nearly doubling to 12 in May, compared with April’s five homes sold.

Arroyo Grande also experienced a drop in median home price, falling from $1.06 million to $912,000, though listings held strong month-over-month, increasing slightly from 24 in April to 26 in May.

Home sales in Arroyo Grande continued to outperform the city’s other South County neighbors, with 29 total sales in May. That was also up from the 20 sales made in the city in April.

Nipomo fell from an April median home price of $1.09 million to $983,000 in May. However, home sales in Nipomo made a substantial recovery between April and May, jumping from nine to 24.

Pismo Beach’s housing market proved more stable, with its median price climbing slightly from $1.46 million to $1.48 million.

Home sales in Pismo Beach ticked upwards from five to nine month-over-month, with active listings following suit, growing from six to 17 over that time.

Realtors: High interest rates will keep market in check

Lindsey Harn, a San Luis Obispo Realtor with Christie’s International Real Estate Sereno, said the market’s current conditions are unfavorable to sellers, as high interest rates discourage current home owners from foraying into the buying market.

Harn said nationwide, 92% of all current homeowners have a mortgage rate less than 6%, 82.5% have a rate lower than 5% and 62% have a rate lower than 4%.

According to home buying corporation Freddie Mac, the rate on a 30-year fixed-rate mortgage was as 6.67% as of June 22. Harn said that’s a sticking point for both prospective sellers with locked-in low rates who don’t want to see their monthly payment rise and prospective home buyers with lower incomes, who would be priced out of the monthly payment on a home.

Harn said this problem shrinks available inventory, as existing homes simply are not changing hands as frequently.

However, there’s a chance more determined and higher-income buyers will ignore the high rate, with the expectation of refinancing down the line, she said.

“There’s always an initial knee jerk reaction when the rates jump up,” Harn said. “Now people who are in the market have adjusted to 6% and 7%, so that shock value is not there. People that are smart realize they’re going to be better off buying now at today’s rates than waiting three to four months for another rate hike.”

Updegrove said the current market has changed his view on what happens to demand in tight markets.

What used to be considered unsustainable price growth is no longer a deterrent to sales, because high income buyers will still be able to buy the least affordable properties.

“If we do have low inventory that is not meeting the demand, then you will continue to have buyers that are buying property that can afford it,” Updegrove said. “I think, unfortunately, or for better or worse, you know, some number of those are going to be out-of-town buyers.”

If nothing spooks the market, rates will likely come down eventually, but in the meantime, rate hikes are likely to continue through 2023, Updegrove said.