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Week of December 25th - 31st
Property Tips and Tricks
Put in the work
In the past year, I’ve noticed a significant disparity in the pricing of properties that require renovation. There’s been an uptick in dated homes listed for sale that demand a premium, with the assumption that buyers will contribute their own sweat equity without any additional compensation. This trend overlooks several important factors.
Firstly, labor costs are a significant part of any renovation project. Whether it’s hiring professionals for specialized tasks or the time and effort homeowners put into DIY projects, these costs can add up quickly. Secondly, the time value of money plays a crucial role. The funds tied up in a renovation project could potentially be invested elsewhere for a return. Lastly, the process of planning and executing a renovation is a complex task that requires a considerable amount of time and effort.
However, if you’re able to identify a property in need of work, or if you already own such a property, there seems to be a consistently robust demand in our local market for fully renovated properties. Buyers are willing to pay a premium for homes that are move-in ready, saving them the hassle of undertaking renovations themselves.
Looking back at the sales that occurred in 2023, the transactions that stood out the most were those involving newly renovated homes that fetched significantly higher prices. These properties, despite requiring an initial investment for renovations, ended up commanding substantial premiums due to the high demand for turnkey homes, paired with the short supply of these types of properties.
As we move into 2024, I expect this trend to continue. Homeowners who are willing to invest time and resources into renovating their properties stand to benefit. The market seems to reward those who are not afraid to “put in the work”, transforming properties in need of renovation into desirable, move-in ready homes. This trend underscores the value of sweat equity and the potential returns from investing in property renovations. It is also a good reminder that it is not necessarily what it is, but what you make of it.
Real Estate News
Looking back on 2023 by the numbers
As 2023 comes to a close, the real estate market held up surprisingly well as the higher rates did not bite as hard as most expected. A decline in the number of transactions was observed, yet property valuations remained robust, largely due to a decrease in inventory entering the market. The increased rates resulted in a “lock-in effect”, reducing market turnover as potential sellers chose to retain their lower mortgage rates rather than enter the market.
The accompanying chart provides a month-by-month comparison of new listings in 2019 and 2023. It’s evident that each month of this year witnessed fewer new listings than its 2019 counterpart. April was particularly affected, a time when many homeowners typically decide to list their properties. The expected surge in new listings during spring this year was noticeably absent.
On a national scale, home prices saw an uptick last month, marking the ninth consecutive month of increases. Most regions across the country experienced home appreciation, with gains reported in 19 of the 20 largest cities. The average 30-year mortgage rate continues its downward trend, recently reaching its lowest point since May. This is beneficial for buyers securing financing, although home affordability remains a significant challenge.
Below, you’ll find a chart I’ve created that compares various statistics for Monterey County in 2023 and 2019 (2019 was a more normal year, in my opinion). This year concluded with approximately 33% fewer new listings and around 35% fewer sales compared to 2019, despite the sales volume remaining nearly unchanged. The reason? A substantial increase in prices over the past four years, which bodes well for sellers as we move into 2024.
Speaking of sellers and 2024, I don’t anticipate a significant surge in new listings coming to the market. However, the early months of 2024 could see a slight increase in new listings compared to the same period in 2023. Sellers with newly built or renovated homes can continue to explore higher listing prices, given the sustained demand in our local luxury market for turnkey properties.
For buyers hoping to capitalize on distressed sales for discounted properties, there’s currently no indication of such a trend emerging as we transition into 2024. A viable strategy for securing the best discounts remains negotiating for properties that have been on the market for an extended period. However, this approach requires buyers to have a flexible “buy box”.
I recently listened to an interview with a banker who purchased a home in Redondo Beach in 2006. By 2008, he regretted his decision as property valuations had plummeted, and the rent from his tenant living in the home barely covered the mortgage payment. He felt he had made a significant financial loss. However, fast forward to today, he has retained the property, which has since appreciated by seven figures. The takeaway from this story is simple yet can be challenging to implement - patience pays off. Time spent in the market outweighs attempts to time the market.
Currently, the Monterey Peninsula’s real estate market health appears robust. Many homeowners have secured low-interest rate mortgages, and thanks to the property appreciation over the past few years, they now have even more equity in their homes. The image below provides a snapshot of Carmel-by-the-Sea and Carmel Point, highlighting hundreds of properties. Those with over $1,000,000 in equity are marked in green. While this information is publicly accessible, I’ve slightly blurred the image for privacy reasons. Trust me when I say that well over 95% of the residential parcels are green.
As we approach 2024, the market sentiment today appears to be more optimistic compared to the same period in 2022, although the future remains as uncertain as always. A host of macroeconomic factors have undergone significant shifts in recent months, including a notable upswing in the stock market, fluctuations in interest rates, and the looming election. The past year has indeed been remarkable, and I eagerly anticipate the developments that 2024 will bring.
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Jonathan Balog
DRE# 01980970
Broker
M: 831.747.0310
[email protected]
Compass is a real estate broker licensed by the State of California operating under multiple entities. License Numbers 01991628, 1527235, 1527365, 1356742, 1443761, 1997075, 1935359, 1961027, 1842987, 1869607, 1866771, 1527205, 1079009, 1272467. All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.
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