Marin County Real Estate 2009 Year End Review

February 10, 2010

Filed under: 1. Marin Update — dwdupont @ 5:48 pm

Marin County Real Estate :

In the last 44 years, there have been only two years (excluding 2008 & 2009) when average home prices in Marin County have decreased from one year to the next: -1.2% in 1991 and -1.4% in 1992– after the S&L crisis.

Marin County average residential home prices fell -12.7% in 2008 and -21% in 2009.  

A unit-sale weighted average of Southern, Central & Northern Marin show Southern Marin prices are down -17.4%, Central Marin down -13.1%, and Northern Marin down -18.4%.

MArin PRice by Region

 Central Marin has seen a larger decline from peak to trough and a correspondingly larger recent bounce off a bottom.

Marin County Unit Sale by region

Marin Ave$sqft SOMA CEMA NOMA

This graph of Marin County Average selling $/SQFTR is quite interesting as it shows quite clearly the premium home shoppers pay for proximty to San Francisco.

Southern Marin by MKT Segment

At one point in Decemeber 60% of the homes on the market below $1.2m were in contract. This is evident in the above graph as is the relative stagnation of the higher end of the market.

How far are prices likely to fall?

There is some misunderstanding regarding why home prices appreciate and what drives this appreciation.  Home prices are primarily driven by jobs and incomes within the commutable job market around the subject property. If the number of jobs and incomes are increasing—home prices should increase. The reason for this is that home owners can only spend a certain part of after tax income on housing (around 30%); the rest needs to be spent on other necessities like food and clothing, and discretionary things like vacations and meals out, and savings.

 Secondarily, home prices are driven by interest rates on mortgages and, recently– lending standards. Other factors include long term demographic cycles—such as perceptions regarding homeownership, and the aging of generations.

The next several graphs tell a similar story– as interest rates rise, or incomes fall, or lending standards tighten, home prices come under pressure:

Rising Income

Falling hOme pRice Interest Rate rise

The last 20 years in Marin County saw: the baby boomer generation reached its peak in income and spending, while the number of jobs increased, incomes increased, mortgage rates decreased, lending standards decreased, and taxes generally decreased. This created a perfect environment for home prices to appreciate. The next 20 years will likely seeing more stagnant job and income growth, a downward shift in spending habits by the baby boom generation, likely higher taxes, and higher interest rates. Within this environment, it is unlikely that the next 20 years will see the same rapid home price appreciation as the last 20 years.

Importantly, Marin County home prices will likely be more resilient relative to other parts of the country due to the limited supply of housing, great public schools, safe neighborhoods, incredible outdoor lifestyle, and close proximity to one of the best job markets in the country. In fact, the harsher economic conditions become, the greater the “flight to quality” and the greater demand for relative safe and secluded communities like those found in Marin county.

MArin Towns Comp

Dollar rturn by town

By several indications prices in several Marin towns are nearing a bottom, and in others like Tiburon, the price adjustments will likely gain speed in 2010. It is important to look beyond the top-line numbers in some thinly traded towns to see what exactly is going on and where in the corrective cycle the town is. Example: Kentfield in 2009, two extraordinary homes traded over $9m skewing average price data; in 2009, average price data shows only a mild 1.9% correction whereas, Median prices fell -15%.

 Many people think that median prices are a better indication of the market, however, the truth is that both average prices and median prices both tell us different tales about about the market; and the relative spread between them over time combined with other factors such as unit sales, % in contract and DOM market reveal details about the market that help us create value for buyers and conserve value for sellers.

 Below is an interesting comparison between median and average pricing I found on wikipedia:

 “The median home price is one of the most common measurements mistakenly used to compare real estate prices in different markets, areas, and periods. It is said to be less biased than the mean (average) price since it is not as heavily influenced by small number of very highly priced homes. However, this is not true. Actually, it is more biased than the mean because it is more easily influenced by abnormalities in the market, such as an extraordinary influx of say, low-selling foreclosure sales prevalent in an economic downturn. This is due to the tiny sampling size of just 1 (or at best) 2 sales that the median sale represents. The median introduces an unacceptable level of Sampling error. The mean, though not perfect, is superior to the median because it at least eliminates sampling error by utilizing all of the available sales.” (Wikipedia)

 2010 will likely see a resumption of downward pressure on home prices nationally as another tranche of foreclosures hit the market. It is estimated that in the next 18 months there will be another 5 million home foreclosures nationally.  Whereas the first tranche was primarily confined to sub-prime loans and teaser rate resets, this next tranche will be driven by both “Alt A” and “Option ARM” rate resets as well as prime loans delinquent due to sustained rates of high unemployment.

Another Wave of Foreclosures

For more information on the state of the housing market please google “T2 Partners Housing Report”.

Economy:

Q4 2009 GDP grew at 5.7% which, combined with other recent readings, on the surface shows an increasingly stable economic recovery. However, major problems persist including unemployment and generationally high debt levels at the consumer, municipal, state and national level.

What we are seeing and living through in this recession is a shift of greater magnitude than typical recessions– its an aggregate downward shift in demand due to a contraction in the financial services portion of our national economy, and a corresponding reduction in the use of debt for consumption. Simplistically, this means our economy is in the beginning stages a longer period of contraction and deleveraging. Even more simplistically—we have entered a period of deflation.

Employment:

National:

The national economy is in the initial stages of an economic rebound. There are many differing opinions about the course of this recovery but they are generally confined to two polar opposite opinions: a “V” rebound or the “W” double dip recession. Due to the crippling debt burdens at almost every level, it is likely that any recovery will be very slow as this deleveraging process can be very slow.

The political response is critical. If America follows Japan’s example trying Govt. stimulus after stimulus to prevent the inevitable de-leveraging process, we could be in for a similar 15 years during which Japan’s stock market languished at 30% of its peak levels with very low growth and very high unemployment.

Long Waits

Local Marin/SF Bay Economy:

Hiring and firing in the Bay area lags the broader US economy. The latest stats show that the SF-San Mateo unemployment rate hit a new low of 9.3%, and CA 11.9%. This helps explain the painfully slow pace of home sales and the buyer reluctance we are seeing in the marketplace. The longer-term prospects for our job markets remain very good with the caveat that Sacramento doesn’t drive business out of the state by taxation.

Capital Markets: High end Marin home sales are traditionally led by moves of the stock market. The US stock market has rebounded sharply, but to date this rebound has had little effect on either the price or pace of high-end home sales in Marin.  It is likely that the S&P 500 and DOW industrials will retest the March 2009 lows prior to reaching new highs. Any major decline in the stock market will ripple through Marin housing at all levels and hinder demand in all market segments. Readers are advised to reduce risk in their protfolios be eliminating any exposure to equities and sliding down the risk ladder by selling riskier corporate bonds and investing in short term treasuries until there is clear indication that the recovery has overcome the headwinds and gained traction.

Real Estate Valuation: Residential Real Estate relies on flawed valuation models. The mantra is that homes “are only worth what someone will pay for them”; and the best way to value a home is in comparison to other similar homes that have sold recently nearby; articulated mainly by $/sqft. The problem with this antiquated valuation model is comps closely track the business cycle so towards the peak the comps will guide people to overpay (and banks to over lend) and at the bottom buyers won’t fully understand the value inherent in the marketplace due to short sales and foreclosures; another way to look at this is that comps favor sellers in a rising market, and favor buyers in a falling market; and really don’t accurately value anything in any market.

A revolutionary new internet residential valuation process is in the prelinimary stages of being launched. This model introduces a concept called “Fair Value in a Balanced Market” (FVBM) where supply and demand meet perfectly at each market segment. In hot markets homes will sell above FVBM, and in cold markets, homes will sell below FVBM.  More on this when it launches.

Last, in the ensuing pages you will find detailed statistical information about Marin County, its 13 primary towns as well as Stinson Beach data. I have purposely left the commentary on the thin side as I don’t want to encourage my competitors to misuse my research as they have over the last 18 months. The data you will find in these pages represents the tip of the ice berg and is also our competitive advantage in the marketplace—Our research  is the reason we outperformed virtually all other agents in Marin real estate last year, and why our clients save money by working with us. For more detailed information regarding the application of this data in actual real estate transactions—please call me at 415-867-6611 or email me at Dave@TheDuPontGroup.net to set up a time to talk.

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1 Comment

  1. WONDERFUL Post. Thanks for posting this market data!

    Comment by sexel — September 17, 2010 @ 3:20 am

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