The Santa Barbara luxury real estate market has exceeded yet another record in closed sales. The luxury real estate market is defined as properties priced over $10 million. 2007 is the 7th consecutive year in a row of exceeding the prior year in closed escrow sales revenue in the Santa Barbara luxury real estate market. The closed escrow sales volume of Santa Barbara luxury real in 2007 exceeded $279 million. That compares with just over $219 million in 2006 which was an all time record, and a big increase over the 2005 total of nearly $129 million.
This record revenue is no anomoly. The closed escrow sales revenues for the last 7 years according to the Santa Barbara Multiple Listing Service are as follows:
2007 $279,409,323.
2006 $219,273,112.
2005 $128,800,000.
2004 $74.750,000.
2003 $64,500,000.
2002 $50,330,000.
2001 $23,500,000.
2000 $16,000,000.
Supply and Demand
Historically, the luxury real estate market in Santa Barbara has grapled with low supply and high demand which is the catalyst to the record closed sales revenue over the last 7 years. Santa Barbara is one of the most beautiful places in the world, and buyers of luxury real estate know this.
On the supply side, Santa Barbara is a small oceanfront enclave. Due to its physical size, there are geographic limitations which are the ocean, the mountains and adjacent residential communities on either side of Santa Barbara which restrict growth. Within the boundaries of Santa Barbara, there is a very limited supply of vacant land available for new construction. There are a multitude of strong local goverment regulations that restrict development that add to the challenge to build new construction.
On the demand side, living in Santa Barbara is in high demand by the luxury real estate buyer and it always has been. Santa Barbara has a history going back to the 1920's when wealthy families began making Santa Barbara their home. These families include familiar names such as the Fleishman's and The McCormick's to name just a couple examples. This trend of the wealthy buying in Santa Barbara has continued for decades and still exists to present day.
Historically, the demand for Santa Barbara luxury real estate has been predominantly domestic. More recently, in the wake of the global ecomony, the demand from luxury real estate buyers is beginning to come from all parts of the globe. With today's current economic environment, and the valuation of currency, Santa Barbara luxury real estate is considered extremely desirable to many buyers who have previously not been part of the historical demand.
The demand for luxury real estate in Santa Barbara exceeds the supply available. Many economists, and statisticians have stated that Santa Barbara cannot build enough to keep up with the demand. The low supply and high demand is the predominant reason behind the 7 years of record revenues.
So Now What?
The low supply and high demand scenario is not likely to change. It is more likely that the demand becomes higher than ever, and supply continues to wane. There are not enough luxury real estate properties available or currently under construction to keep pace with demand. Due to geographic restrictions, and local government regulation, Santa Barbara cannot build to exceed demand. In fact, the expectation is that demand will become stronger than ever due to foreign demand.
The Santa Barbara economic environment is strong. The luxury real estate market is not suffering from subprime or foreclosure. A large percentage of these luxury real estate buyers purchase these properties for cash. The $10 million+ price threshold restricts the ability of the majority of speculators to enter this real estate segment therefore significantly limiting speculation on future values. Many luxury real estate owners dont sell due to high capital gains taxes, and lack of replacement property options. With low supply, sellers who likely paid cash for their property have little motivation to discount the value of their property a the time of a sale which is a strong catalyst to pricing of the luxury real estate market in Santa Barbara.