Marin County Update

May 20, 2010

Filed under: 1. Marin Update — dwdupont @ 10:21 am

The capital markets play an interesting and pivotal role in real estate markets;

  • Interest rates on mortgages are led by movements of highly complex bond markets.
  • The number of loans that are made are a function of many things—but most importantly: how easy these loans are to be securitized and sold off to investors thereby reducing risk for the bank actually making the loans.
  • BUT….: The stock market (at times) is the most important OF ALL for Real Estate:
    • Stock prices are a leading indicator of activity and prices in the high end of all real estate markets as liquidity events enable trophy home purchases and second, third and fourth homes around the world: homes for skiing, homes for surfing, homes for college kids, homes for wives—aka incremental demand at all price points!
    • Stock prices often lead employments markets which lead activity in the lower echelons of real estate markets. Average & median home prices are fundamentally driven my jobs and incomes in the commutable distance to the property. Stock prices reflect better expectations which drive hiring and firing.
    • Most interestingly of all: Short term movements in stock prices reflect short term changes in attitude of large numbers of people. These same attitudes drive home purchase decisions by large numbers of people.

We all already know that mortgage lending has been difficult. It has eased somewhat, but it’s still tight.

The direction of Marin Real Estate markets will be led by the stock market. If the stock market is supported near 8,500 on the DOW and we bounce around between that level and where we are now (10,300+-) everything will be fine, the bottom of our real estate market will happen sometime in 2010 or early 2011.

Currently, the stock market is all important in all price leves: if the stock markets retests the March 2009 lows—that will spell serious trouble.  The ultimate bottom of the stock market correction will signal that the bottom of the real estate market is 6-12  months off:  as it takes time to sell homes when loans are hard to come by, companies aren’t hiring, and everyone has lost money in stocks.

The ultimate scope of the housing correction, and the Great Recession will be determined by stock market price levels over the next 6-18 months.


Belvedere Real Estate Update

Filed under: Belvedere — dwdupont @ 9:47 am

Belvedere homes and home prices are similar to Tiburon (or vice versa). Troubled Belvedere homeowners as well as sellers that simply want to move for ANY reason, have been holding out for 20 months now. But they can’t hold out forever; and we are now finally seeing homes trade at more reasonable prices.

Like every town in the county, loans were taken for a variety of reasons (remodel, vacation, new cars etc) leveraging real estate like it was a Treasury Bond with a guaranteed return. The middle chapters of this story are now complete: these real estate return assumptions were faulty, but the money was already spent (growing our economy at an unsustainable GDP rate). And now after years and years of living in Belvedere, as well as months (or years) spent on remodel with very high input costs (wages & materials), these homes that are finally coming to the market are priced to “get their investment out”. Homes priced this way rarely sell in a declining market where other comparable homes nearby are “priced to sell”.

There are $200,000,000 worth of homes for sale on and off the MLS in Belvedere alone. The longer these homes site on the market, the lower they will sell for. The average list price of a home in Belvedere is $5,000,000.

We have entered a period of much slower growth due primarily to 2 things: the demographic reality of the baby boomer generation on the down slope of its generational spending cycle, and second—a glut of debt on every level: consumer, municipality, state, region and nation.

Homes sold for very high prices in 2005-2007 during the peak spending years of the baby boomers and the peaking lending years by banks. There may be a few homes purchased by buyers at prices where money is less important than finding the perfect house; but most of these homes will likely sell at lower prices. The longer sellers wait to drop their prices the less they will get for their homes.


Mill Valley CA Real Estate Update

Filed under: Mill Valley — dwdupont @ 7:23 am

Mill Valley Real Estate has had a decent 6 months. Activity in the lower market segments really increased, many homes were sold, and families were able to move on with their lives. Like other areas in the area, state & nation many homes were purchased based on assumptions which turned out to be incorrect, and on a financial paradigms that proved faulty:

Example of mistaken assumptions & a broken Paradigm:

  • A lot was purchased with a tear down on it for $995,000 up near the Edgewood area of Mill Valley.
  • At the time everyone said it was a “fantastic deal.”
  • A new 3,250sqft house was built that cost $435/sqft to build during peak market conditions.
  • Additionally the owners spent about $200,000 on hardscape, landscaping and architecture and are into the house for about $2.6m.
  • While it is a beautiful house with a wonderful floor plan for a family, it is of average finish and quality due simply to the cost of materials at the height of the bubble.
  • The family had two incomes, but the husband was transferred back east by his company. He said no, left the company, and started looking for work… but it was slow going.
  • They put the house on the market at $2.7m so after commissions they would be “almost whole” not including any compensation for the endless hours, & marriage and family stress of selecting and designing items.
  • They are now getting offers in the mid $2.2m range.
  • The house will eventually sell near that $2.2 number and after commissions will result in a $400-$500,000 loss…. not to mention all the time and energy wasted with architects, designers and selecting door knobs.

Last year saw a tremendous number of situations very similar to above. Mill Valley average home prices tanked just over -20%. Most of the sales that drove down average prices were in the bottom 2 quartiles of price in Mill Valley– the upper market homes mostly sat and got dusty.

Activity in the upper market however has continued to be sporadic but now there are at least homes selling—the ones priced to sell. All the other homes are priced to “get my money out” — these homes aren’t selling in this market. Sellers are advised to wait 3-5 years to sell higher priced homes as you will have a difficult time getting your money out in this market.

The assumption that someone will eventually come along and buy it doesn’t work in a declining market the way it works in an rising market. In a rising market, the longer you wait the better your chances are regardless of how many days on market. In a declining market the longer you wait for Mr & Mrs. Right, the lower your eventual sales price will be.

While recent data for Mill Valley SFR homes is improving– +8% for the year relative to the last 12 months, this is the kind of bounce you would expect this time of year anyway and so at best we are mildly improving. The likely path moving forward depends on the direction of the stock market as it will lead the employment markets and housing in all price ranges.

One way to hedge price decreases in your home: go short the S&P 500 (this should not be considered as investment advice or financial planning advice). Please speak with your investment advisor and if you don’t have one, please try to find one.

“Jake Schutt at Parallel Advisors (www.paralleladvisors.com) says that first: you should have a financial plan in place and know how you are tracking against your goals. This also puts portfolio gains and losses in meaningful context. Second, a diversified portfolio with the proper allocation will protect you against downturns.”

Recent market data of homes in contract in Mill Valley:

Mill Valley condo prices are seeing a 2% bounce relative to the last preceeding 12 months.


Tiburon CA Real Estate

Filed under: Tiburon — dwdupont @ 7:23 am

Until now Tiburon has weathered the recession with little blood spilled. The reason has more to do with the holding capacity of Tiburon sellers– being wealthier and generally more successful, they can withstand downturns longer than people in other areas; but eventually homes get listed and sold at price levels that make sense given incomes in the area. My data shows that the average homes in Tiburon are trading at over 6 times average incomes when the normal range is closer to 4. We will have more accurate income data in 6 months or so when the Census data is published, but the point is that the paradigm for Tiburon home purchases was recreated during the bubble years and  needs to be redefined.

Tiburon Single Family Homes are in moderate correction mode -2% over the last 3 months versus the trailing 12 months as measured by $/sqft of sold homes. A more positive statistic is that Tiburon average prices are up almost 6% during this time. Either way, the data is at best mixed and is not good as it coincides with the Spring Rush after a very slow year.

Tiburon condos are actually doing MUCH better over the last 3 months +8%, but remember that was after 40% declines in 2009.

Tiburon homes in contract as shown below are a coincident indicator of activity in the market. As you can see measuring this blog to past Tiburon blogs, more homes are selling at lower prices. My guess is that the direction of the market over the coming months will be moderately negative as distressed situations that have been waiting for 18 months for resolution are finally coming to market, or are being repriced to more realistic levels.

The market for Tiburon homes has had a tough week. There following homes have either recently sold or are in contract:

1)      140 Lyford Drive, Tiburon wonderful lot – 5,023 sqft

  • This house sold for $4.4m in 2005
  • Closing Price Today = $3.370m
  • sold for $670/sqft

2)      7 Hillcrest, Tiburon built in 2007 & well appointed – 4,950sqft

  • Sold for $2.950m on 2/24/10
  • Sold for $605sqft

3)      2311 Spanish Trail Rd

  • Sold for $3.030m on 4/30/10
  • $678/sqft

4)      70 Gilmartin Drive, built in 1990 – 5,560sqft

  • Sold 3/27/10 for $3.275m
  • $589$/sqft

5)      490 Ridge Rd. Tiburon, brand new house on a wonderful view lot with a pool $4,111sqft

  • Contingent near $3.3m asking price

6)      616 Ridge Road,–went pending back in December – OLDer COMP

  • Sold at $3.321m
  • $683/sqft

7)      198 Stewart Drive – This sale is over 6 1/2 months old—the Tiburon market has declined substantially since then – OLD COMP

  • Sold for $3.065m 11/5/09
  • $785/sqft

Sausalito CA Real Estate Update

Filed under: Sausalito — dwdupont @ 7:03 am

 Updated 6/3/10

Sausalito Real Estate continues to struggle. The area has been hit severely by the real estate meltdown– worst in Southern Marin by several different metrics: Average & Median price declines, average $/sqft declines, and unit sale declines. There are currently 60 SFR homes (not condos) for sale and only 8 of them are in contract, or 13%. This representsd very difficult conditions and foreshadows additional price contraction ahead as value buyers strong arm sellers.

Every person, buyer, seller, bystander, & non-local Realtor asks the same thing: why is Sausalito down so much more than other areas in Southern Marin? The answer is as follows: Sausalito is as impacted by San Francisco real estate buyers trends as much as it is by Marin County buyer trends. The buyer trends in Marin are: the only real buyers in the marketplace are families with kids. All other buyers are really just kicking tires right now, even though they may think they are serious about buying.

The only people with any urgency to buy right now are families with kids looking for schools. In San Francisco– schools are a real problem: public schools are mediocre, and the good private schools are almost impossible to get your kids into. The same is true for public schools in Sausalito– so families with their offspring are staying on 101 for another exit or two to find a better public school district, larger back yards and warmer afternoons.

SO…. the are very few real buyers in the Sausalito market. Plenty of tire kickers, but almost no real buyers. This likely won’t change until there is clear indication of an improving economic situation.

The Sausalito SFR market is still in a Moderate active decline at -5% over the last 3 months

The condo market in Sausalito is doing better at +1$ over the last 3 months.

SFR & CONDO % in contract as off 6/3/10:


Powered by WordPress