Santa Barbara, CA Real Estate Market Trends & Analysis [Updated 2021]

by Than Merrill | @ThanMerrill
Published on Wed, Apr 7 2021

Jump To Another Year In The Santa Barbara Real Estate Market:

The Santa Barbara real estate market has enjoyed a historic run in home values over the course of a decade. As a result, real estate in Santa Barbara has become a luxury commodity. Despite rapid appreciation, however, demand remains intact and should catalyze activity moving forward. It appears as if today’s high prices aren’t enough to scare away buyers, which begs the question: Is Santa Barbara real estate a good investment?

While the pandemic has created headwinds for just about every market in the country, Santa Barbara has seen a healthy amount of activity, which bodes incredibly well for local investors with deep enough pockets. Instead of rehabs, however, local real estate investors have turned to more passive exit strategies. Rental properties appear more suited for today’s market and can help offset the city’s exorbitantly high prices. Additionally, the Coronavirus has tilted many of today’s most important market indicators in favor of passive income holdings, and investors are starting to reap the rewards.

Santa Barbara Real Estate Market 2021 Overview

  • Median Home Value: $1,288,886

  • 1-Year Appreciation Rate: +11.3%

  • Median Home Value (1-Year Forecast): N/A

  • Median Rent Price: $4,500

  • Price-To-Rent Ratio: 23.86

  • Unemployment Rate: 7.1% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 446,499 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $74,624 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 7.48%

  • Foreclosure Rate: 1 in every 5,098 (1.9%)

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Waterfront view of Santa Barbara housing market.

2021 Santa Barbara Real Estate Investing

The Santa Barbara real estate investing community has done well for itself since the Great Recession. Rehabbers have grown accustomed to attractive profit margins fed by demand and appreciation. However, the same price increases that have helped real estate investors in Santa Barbara for nine consecutive years are now forcing them to rethink their strategies.

Santa Barbara is one of the fastest appreciating markets in one of the most expensive states. In fact, the city’s latest run-up has turned the local real estate market into a destination primarily driven by luxury home sales.

“Median list prices surged in the Santa Maria, CA, metropolitan area, which includes Santa Barbara, CA. They were up no less than 44.0% annually in July [2020], to reach $1,795,050,” said “That was the largest increase in the nation, despite the relatively high percentage of locals out of work (12.0%). In the Los Angeles metro area, prices increased by 24.0%, to a median $994,150.”

Nearly decades worth of appreciation, in addition to Santa Barbara real estate trends brought about by the Coronavirus, has made the prospect of rehabbing slightly less attractive. While rehabbing in the Santa Barbara real estate market can still result in attractive profits, several trends suggest long-term real estate investing strategies are more viable than their short-term counterparts.

Here are some of the new Santa Barbara real estate market trends benefiting rental property investors:

  • Interest rates on traditional loans are historically low

  • Years of cash flow can easily justify today’s higher acquisition costs

  • Inventory shortages will increase rental demand

As of March, the average rate on a 30-year fixed-rate loan was 3.08%, according to Freddie Mac. March also represented one of the lowest average mortgage rates ever, and the Fed announced its intentions to keep rates low for the foreseeable future. As a result, lower borrowing costs have brought down acquisition costs for those looking to add to their passive income portfolio. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to pad their bottom line.

Lower borrowing costs will help absorb today’s high prices, but it’s the cash flow potential of real estate assets that make the prospect of owning a rental property even more attractive. With a median rent price of $4,500, it is possible to simultaneously rent out an investment property while having someone else pay down the mortgage. That way, investors could build equity in a physical asset and collect cash flow each month with the right long-term investment.

Long-term real estate investors in Santa Barbara will appreciate the cash flow potential and low borrowing costs. Still, the most attractive aspect of investing in the local market may be supply and demand. As it turns out, Santa Barbara has very low inventory levels (not unlike everywhere else). Active listings are down 8.4% year-over-year, but demand remains incredibly high.

Therein lies the true benefit to becoming a rental property owner in Santa Barbara: demand. There are far too many buyers competing over very few homes, which means many will be forced to rent. Even those who intend to buy will be relegated to the rental market until either demand lets up or more inventory hits the market. Either way, rental property owners will find their cash flows increasing and their vacancies easier to fill.

Investors are lucky to have several viable exit strategies at their disposal. Still, none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.

2021 Foreclosure Statistics In Santa Barbara

According to RealtyTrac, one in every 5,098 homes is distressed, or 1.9% of all properties. That is a relatively high foreclosure rate, which may be attributed to the city’s 7.1% unemployment rate.

At 7.1% (as of February), the city’s unemployment rate is above the national average, which is 6.0%. Though similar, Santa Barbara’s unemployment rate seems to be taking longer to improve.

While unfortunate for homeowners, distressed homes represent a buying opportunity for investors. Foreclosed homes in Santa Barbara may be investors’ best bet for acquiring deals below market value, which has many people asking one simple question: Where should I invest in Santa Barbara?

The Zip Code with the highest distribution of foreclosures in Santa Barbara is 93109; one in every 5,098 home is distressed. Of the city’s distressed homes, the overwhelming majority are of the auction variety. Therefore, investors looking to secure a deal below market value should pay special considerations to local auctions.

While foreclosures have been on the decline since 2019, the presence of the Coronavirus has already resulted in more distressed homeowners. The unexpected economic downturn has started to prevent homeowners from keeping up with monthly mortgage obligations. It is safe to assume more homeowners will be distressed later in 2021. When that time comes, those who can’t comply may find themselves distressed, and well-positioned investors in Santa Barbara may be able to offer a helping hand.

2021 Median Home Prices In Santa Barbara

At this time last year, the median home value in the Santa Barbara housing market sat somewhere around $1.1 million. However, having benefited from an impressive appreciation rate, the median home value in the Santa Barbara real estate market has reached $1,288,886. To put the last year into perspective, the median home value in the United States is now $272,446 after appreciating by as much as 9.9% in one year’s time. Real estate in Santa Barbara, on the other hand, managed to increase 11.3% over the same period of time.

Since the Santa Barbara real estate market bottomed out in January 2012, home values have appreciated more than fifty percent. At that rate, Santa Barbara outpaced the national average over the last decade, and certain neighborhoods have benefited more than others.

Years of historic appreciation have made these the most expensive neighborhoods in Santa Barbara (according to NeighborhoodScout):

  • Alameda Padre Serra / Las Alturas Rd

  • Montecito

  • Mission Canyon

  • N Jameson Ln / Olive Mill Rd

  • Modoc Rd / Las Positas Rd

  • Westmont College / W Mountain Dr

  • Fielding Graduate U / Anacapa St

  • Hope Ranch

  • San Marcos Pass Rd / N San Marcos Rd

  • City Center / Antioch U-Santa Barbara

The same inventory shortage that served to increase prices for the better part of a decade may be magnified by home builders sitting on the sidelines during the pandemic. Without new builds being brought to the market, it is safe to assume competition will remain high, driving prices up even higher than they are now.

Santa Barbara Real Estate Market: 2020 Summary

  • Median Home Value: $1,134,649

  • 1-Year Appreciation Rate: +2.0%

  • Median Home Value (1-Year Forecast): -1.5%

  • Median Rent Price: $4,500

  • Price-To-Rent Ratio: 21.01

  • Unemployment Rate: 11.6% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 446,499 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $71,657 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 7.48%

  • Foreclosure Rate: 1 in every 5,811 (1.7%)

Santa Barbara Real Estate Investing 2020

Santa Barbara real estate market trends weren’t particularly unique in 2020. Much like the rest of the country, real estate in Santa Barbara went the way of the pandemic. Consequently, the California coastal city started the year off firing on all cylinders. However, three months into the year, when the Coronavirus was officially declared a pandemic, Santa Barbara took one small step back. Fear and uncertainty forced activity to take a breather. Buyers and sellers weren’t comfortable with the impact of COVID-19 on the real estate market. In a matter of weeks, activity went from prepping for a busy spring buyer season to becoming obsolete. However, to combat the loss of activity, the government drastically lowered interest rates, which turned out to be a great move.

In dropping borrowing costs well below three percent, more people got off the sidelines to buy a home; so much so, in fact, that demand greatly outweighed supply. Insufficient inventory levels quickly turned into competition over available homes, and prices shot up over the course of 2020. As a result, the Santa Barbara real estate investing community was forced to alter its investing strategies. Where investors once favored short-term flips, long-term rental properties became the preferred investment medium. New market conditions created in the wake of the pandemic fostered an environment where rental portfolios could thrive. For starters, borrowing costs simultaneously justified higher acquisition costs and increased the cash flow potential of rental properties put into operation. With less money going to interest payments, investors could pocket more each month.

If that wasn’t enough, the inventory shortage facing the entire country prevented more people from buying. Even people with the funds to do so couldn’t purchase a home if they wanted to, which meant more renters would remain in the market. Buyers being turned down meant landlords would have more demand for their units, which limited risks. At the same time, demand allowed landlords to increase prices.

2020 was a great year to invest in Santa Barbara real estate when all is said and done. However, the focus transitioned from flips to rental properties. The metrics in the market left more potential for landlords. That’s not to say flipping wasn’t profitable, but rather that the market made rental properties more attractive.

Santa Barbara Real Estate Market: 2018 Summary

  • Median Home Value: $1,143,600

  • 1-Year Appreciation Rate: 10.2%

  • Median Home Value (1-Year Forecast): 8.1%

  • Median Rent Price: $4,500

  • Number Of Foreclosures: 101

  • Homes For Sale: 297

  • Recently Sold: 725

  • Median Days On Market:117

Santa Barbara Real Estate Investing 2018

According to Santa Barbara real estate news at the time, Santa Barbara found itself at the forefront of California’s real estate market. The coastal city was flourishing in the post-depression marketplace. That said, it was hard to exaggerate just how well the city’s real estate market was doing in 2018. Santa Barbara was doing as well as any market could hope to be doing just a few years removed from one of the largest recessions in American history. Nearly every indicator was better off in 2018 than in previous years, which helped establish Santa Barbara as a powerhouse in the real estate market for years.

From 2012 to 2018, home values appreciated exponentially, to the tune of roughly $434,600. As a result, the Santa Barbara real estate market’s median home value was somewhere in the neighborhood of $1,143,600 a few years ago.

More than 50.0% of the foreclosures in Santa Barbara were considered pre-foreclosure. That means the owner had missed a payment and was at risk of entering into the foreclosure process, which eventually led to the home being repossessed. While some of those homeowners might have caught up with their payments, it was safe to assume at the time that many wouldn’t. As a result, those homes helped many Santa Barbara real estate investors secure deals.

Santa Barbara Real Estate Market: 2015 Summary

  • Median Home Price: $1,025,000

  • 1-Year Appreciation Rate: 8.1%

  • Unemployment Rate: 3.7%

  • Population: 87,859

  • Median Household Income: $87,744

  • Percentage Of Vacant Homes: 7.5%

Santa Barbara Real Estate Investing 2015

Santa Barbara officially moved on from a state of recovery to a period of economic expansion as early as 2015. Consumer confidence jumped, interest rates remained low, and unemployment rates were lower than at the beginning of the recession. The culmination of these indicators, and many more, suggested the future was bright for the Santa Barbara housing market in 2015.

According to data collected by Zillow, the median home value in the Santa Barbara housing market was $1,025,000 at the time. The relatively high price point was the result of an 8.1% appreciation rate over the last year. The average price of a home in the United States, on the other hand, was just over $200,000.

While Santa Barbara’s housing statistics were not as gaudy as San Francisco, it is worth noting that Santa Barbara was a luxury market. Few markets were less affordable than Santa Barbara so soon after the recession. Experts also believed prices would continue rising for years, and they did just that.

According to RealtyTrac at the time, the Santa Barbara housing market had approximately 174 homes in some stage of foreclosure. These properties were either in default, bank-owned, or are going to be up for auction. Nearly halfway through the year, the number of properties that received a foreclosure filing in the Santa Barbara housing market was 89.0% higher than the previous year.

The Santa Barbara housing market was officially recognized as the least affordable in the state of California. The rise in home prices, in addition to a 34.9% increase in rental rates, made it increasingly difficult for the residents of Santa Barbara to save any money. The cost of living in Santa Barbara was about $79.7k, 22.5% higher than the rest of the state.

Santa Barbara County Map:

Map of Santa Barbara neighborhoods

Santa Barbara Real Estate Market Summary

The Santa Barbara real estate market has enjoyed the same lucrative ride many of its California counterparts have. Most notably, prices have increased nearly exponentially since the Great Recession. To the city’s credit, however, the price increases don’t seem to have detracted from demand. If anything, demand remains relatively healthy, which is the primary reason prices continue to rise. Years of appreciation have actually shifted the way local investors look at deals. While rehabs were once the most popular exit strategy, investors now favor long-term rental properties.

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