The Santa Barbara Real Estate Market: Everything You Need to Know

Santa Barbara is often associated with its pleasant weather, stunning coastal views, and luxurious properties. Therefore, it's no surprise that it has a desirable local real estate market for investors and property managers.

However, with that being said, it's important to note that the Santa Barbara real estate market has still experienced various trends and shifts in recent years, owing to factors such as the COVID-19 pandemic and more.

If you want to know more about the current state of the Santa Barbara, CA, real estate market and what to expect in the future, you're in the right place. Let's look at what the facts say.

Santa Barbara Housing Market Trends

Many of the real estate market trends in Santa Barbara are influenced by larger national patterns. If nothing else, the pandemic has changed how the housing market functions, and Santa Barbara real estate is no exception.

Due to severe supply and demand restrictions in one of the most expensive states in the US, Santa Barbara's real estate market patterns are more pronounced than average. In light of that, let's take a quick look at some Santa Barbara market trends:

Increase in Home Prices

Home prices in Santa Barbara are up significantly. Because of supply and demand constraints, homes have been put on the market for higher prices since the pandemic. In fact, in 2023, the median sales price seems to be testing new highs on a monthly basis. Prices are expected to rise in the near future at a steady pace. However, this, together with interest rate hikes, will result in a decrease in mortgage applications, which will also take some pressure off the housing supply. Therefore, even though prices will keep rising, lower mortgage volumes will result in slower appreciation rates.

Supply and Demand

Supply and demand are impacted by the number of active listings. In 2022, the Santa Barbara balanced markets had approximately two weeks of inventory, which is considered low. With insufficient demand to keep up with supply, the market is in favor of sellers. Ultimately, this leads to steep appreciation, which is evident when looking at the prices of property in Santa Barbara.

However, while the Santa Barbara market is strong statistically speaking, and inventory levels are considered historically low, pending sales have slowed down, meaning that new listings are also slowly accumulating. Therefore, while there is still buyer demand, it is not as aggressive, which means there's potential for Santa Barbara, CA, to turn into a buyer's market.

Increased Mortgage Interest Rates

Since early 2020, the Federal Reserve maintained interest rates at or around zero due to the pandemic's detrimental effects on the global economy and supply chain problems. However, the Fed changed course in 2022 and started hiking rates as a result of inflationary pressures; this trend has persisted into 2023.

The Federal Reserve has increased interest rates in an attempt to combat inflation, which has caused the 30-year fixed-rate mortgage to reach heights unheard of. These increased rates are only going to make Santa Barbara's already expensive market more expensive.

Investor Trends

Investors in Santa Barbara real estate will move quickly to benefit from the current low interest rates before they rise, just like homebuyers would. Many people will turn to rental homes since rates will enable investors to offset increasing costs and boost cash flow at the same time. However, even so, time is running out. Although interest rates will eventually become unaffordable, rental houses appear to be a fantastic investment prospect right now.

Factors Affecting the Housing Market

Some of the prominent factors that affect the Santa Barbara real estate market include interest rates, economic growth, location and desirability, and inventory and new construction.

Here, we're going to focus on the two most dominant factors at the moment, interest rates and inventory:

Higher Interest Rates

It's interesting to note that even while interest rate increases may not have significantly impacted demand yet, there are indications that this will be the case very soon. Google search data shows a sharp decline in "homes for sale" searches over the last three months in major cities. Fortunately, this isn't as serious in Santa Barbara as in other cities because many people are showing an interest in moving to areas with warmer climates, meaning the demand for property will increase. 

Housing Inventory

Since 2020, the real estate market in California as a whole has been one of the hottest. Those who were suddenly working from home found they could do it from anywhere when the Covid-19 outbreak was at its worst, and the majority of businesses implemented remote work rules.

Homeowners on the East Coast made the decision to leave their homes and relocate to sunny California. That led to a record-high demand for housing in California, despite the fact that many people in the Santa Barbara region weren't ready to sell. Every home on the market in Santa Barbara sold for a record price due to buyer demand, even if prices were already on the high end.

According to current statistics, California's housing supply is growing faster than the rest of the country, while the percentage of new listings that are put under contract "immediately" is rapidly decreasing. This could be related to buyer fatigue, given that so many prospective Santa Barbara buyers have given up their quest for a property after rejecting so many offers.

Will the Housing Market Crash?

Even though interest rates are rising and the market has lost some of its edge, experts don't expect a market crash anytime soon. Market conditions are nowhere near where they were during the 2008 recession; therefore, investors do not have to fear a housing bubble.

However, the market is expected to see a downturn because of the increasing home prices and interest rates. Nevertheless, based on trends and predictions, those with robust real estate portfolios may still proceed - just remember to proceed with caution!

When determining whether a real estate market is going to crash, you need to consider the following aspects:

• Affordability: If home prices start to significantly outpace income growth, people would not be able to afford property. This would mean that buyers would not be able to enter the market, and there would be a drop in demand.
• Economic indicators: By monitoring factors such as income levels, job growth, and overall economic health, you'll be able to gain insight into the stability of the market. A significant economic downturn would affect the housing market.
• External events: Natural disasters, changes in government policies, and other unforeseen events could all impact the real estate industry.
• Interest rates: Rapid increases in mortgage interest rates result in reduced affordability and decreased demand, which would put downward pressure on home prices.

Santa Barbara Housing Market Statistics

To gain a better understanding of the Santa Barbara real estate market, it's crucial to take a look at the following key statistics:

• Number of homes sold: Only 39 homes were sold in March 2023, which is a 48.7% year-over-year decrease compared to March 2022.
• Median sales prices: According to Redfin, the median sales price is $2,255,000 as of March 2023. This is a 12.8% year-over-year increase.
• Days on the market: The median days on the market as of March 2023 is 39 days, which is a 17% year-over-year increase.
• Total sales: In March 2023, there were 40 residential sales, which is 6 sales more compared to 34 in February 2023.

When compared to the statistics of other towns or areas in Santa Barbara County, such as Montecito, Summerland, and Carpinteria, Santa Barbara had the highest number of sales in March.

Santa Barbara Housing Market Predictions

It's challenging to predict the future since the Santa Barbara real estate market has witnessed so many changes in the past few years. What we do not anticipate, however, is an extremely hot market or a crash because those events would require an abundance of properties to be listed for sale.

Here's what the experts predict for the future based on the current factors driving the changes in the market:

Housing Inventory and Mortgage Interest Rates

Housing supply and mortgage interest rates will be crucial determinants of the real estate market's behavior in 2023 and the upcoming years. According to California economist Steven Thomas, the number of homes for sale in Southern California is currently at a low level because buyers are snapping up new listings as they come on the market. Additionally, he pointed out that if consumers wait for lower mortgage rates before making a purchase, they can end up competing with other buyers who were also holding out for the rate for their desired property.

The Law of Supply and Demand

It's vital to consider the law of supply and demand. Demand grows and prices rise when there is a lack of available housing; however, demand decreases when interest rates are high. Numerous economists, including those at the California Association of Realtors, believe that median prices and the number of sold houses will be somewhat lower by the end of 2023 than they were in 2022. However, statewide forecasts rarely accurately represent a specific region.

Given how the market acted last fall, these tendencies appear reasonable, but the market has since picked up again! Simply put, there aren't enough homes available to meet demand from buyers, and multiple offers are actually rising. The median price of homes could rise in the immediate future and then decline later in the year, particularly if housing inventory increases.

Bottom Line

As you can see, Santa Barbara isn't only known for its aesthetic factors. It has a desirable real estate market that's driven by its location, natural beauty, and limited inventory. Even though this is a stable and resilient market, you still have to act with caution because of the impact of economic fluctuations and other uncontrollable factors.

However, by monitoring key indicators, such as inventory levels, affordability, economic health, and more, you'll be able to gain proper insights into the future direction of the market.

FAQs

Is It a Good Idea to Invest in the Santa Barbara Real Estate Market?

When evaluating historical data, Santa Barbara has been a wise investment decision. Property managers and landlords often view Santa Barbara as an attractive location to invest in property because of its consistent appreciation, inventory, and overall desirability of the city. However, always make sure to do your research before making any investment decisions.

How Is the Rental Market in Santa Barbara?

The Santa Barbara rental market is considered to be quite competitive, as there is high demand and limited availability of properties. Therefore, rental prices are quite high compared to other cities. However, this is a reflection of the cost of living in Santa Barbara. Hence, this is quite a good market for landlords and property managers to join.