Marin County Real Estate: Fall 2010 Update

August 21, 2010

Filed under: 1. Marin Update — dwdupont @ 11:01 am

Most rebounds in Marin County real estate begin in the low end of the market and move up the price spectrum as liquidity in the lower end enables both growing families (and advancing careers) to trade up into larger houses: adding incremental demand at higher price levels.

The current market rebound for Marin County homes is no exception: the current action in the market (while well below peak market levels in terms of both price and unit sales) is much better relative to the pace of sales in 2009. Price levels show widespread marginal improvement in Q2 and year to date relative to 2009.

This market cycle started in November 2009 and reached the ‘mid-high end’ about 6-8 weeks ago.

  • Activity in the lower market segments in all towns is still brisk as you can see in the below graphs
  • Activity in the middle+ market segments $1mm+ is decent: recently remodeled homes in acceptable locations are still selling for what I consider to be very decent prices. Homes which require remodel are not moving for several  reasons: 1) because recession buyers want to hit the ground running, not a multi-month project 2) Buyers want clarity on what their final costs will be and remodeling  especially in Marin is notoriously opaque on permitting and construction costs, 3) Most of the people actually buying  are families and they don’t want projects; and 4) sellers aren’t pricing their homes to actually sell in this market– buyers require a discount for both the cost of the project, but also a sort of retainer for the cost of living (and the headache) while the work is done.
  • The ultra high end has been disastrously slow and will likely remain that way until sellers focus-in on the economy, pricing, and the secular directional change in the market (more on this below).  Example: The Average listing price of a home on the market in Belvedere is over $6.1m. Example #2: There are over 40 properties on the market in Belvedere and only one is in contract.

The difference in this recovery is that the secular direction of the market has changed. In most past recoveries, the longer-term trend in home prices was up and the counter trend was down. In this market, the longer term trend in Marin will likely be flat or marginally down with counter-trend bounces.

BUYERS:

Calling the bottom in any market is very difficult—real estate is even more so because affordability and pricing are not always the same due to changing levels of interest rates, and the advantageous effect of low fixed mortgages during times of inflation (and inflation is coming, but… after a period of deflation) .  Interest rates are at 30 years lows which combined with 20%-30% price decreases make housing remarkably affordable relative to the past 15 years. The direction of interest rates leads the direction of prices—interest rates will have long bounced above 6+% before the first group makes a significant capital gain on residential real estate.

Second, primary homes are not really investments—especially for families with children. This isn’t to say we should make ill-conceived investments in real estate; but that the real investment return on a primary home is measured in more than the actual dollars returned at the time of sale. Home buyers need to understand that living in a house is the primary investment return in and of itself; and the tax deductibility of mortgage interest is icing on the cake. Actual price appreciation will be unlikely until inflation rears its head later in the decade.

Since the return of a primary home investment is actually living in the house, home buyers need to take their time, breath deeply, set a budget and find the right house at a decent price. What we are seeing in the market place are panicky buyers focusing on the latest doom headline with shifting budgets trying to find the best possible deal. Please don’t shoot us when when we remind buyers that the best deal is quite often not the best home for you and your family. If you buy the wrong house for the ‘right price’ your actual return on your money will suffer every single day you live in the house relative to what else you could have gotten for about the same price. Every $100,000 costs you about $475 each month including property tax & insurance, and every $50,000 cost you $230 per month.

If you are worried about your job,  adjust your budget until you feel more comfortable– the economic picture is murky at best. That said– one of the best places for executives to live and work in this recession is the SF Bay Area. We are the gatekeepers of US entrepreneurialism & technology and there are (and will be) plenty of problems for us to solve moving forward.

SELLERS

The direction of the market has changed and you don’t benefit by low mortgage rates unless you are horse-trading into another house.

Horse Trading: if you are trading into another house you have long ago realized that its a game of arbitrage: Arbitrage opportunity #1: Loose money on your house, save near the same amount on the next house– but with greater utility = higher return on your investment. Arbitrage opportunity #2: Loose money on your house, spend even more with the new purchase, but with even greater day in day out utility = higher return on your investment.

Please call me fore more info on this if necessary 415-867-6611.

Straight Sale: If you are selling and not buying another home, the picture is less rosy. If you can hold on until 2015-2016 it is likely you will get more than selling now for your home (adjusting for inflation). If you factor in carrying costs for the next 5-6 years on a home you are not living in, or would prefer not to live in, then its probably better to bite the bullet and sell now.

Pricing: In a market which is trending flat or down for the next few years, you need to get ahead of the market.The last 50+ years you could get away with pricing high and eventually the market would catch up and the home would sell. In this market you can’t. If you over price your home on day one, your home will eventually sell for less. Every 1% on a non- horse-trade sale is big money. Pick the right Realtor who understands marketing with a track record of sales in this market downturn– the habits most realtors have developed over the last 10+ years is not translating well into selling homes in this environment. Very few agents do their homework– and homework (like what you read on these pages) is our ammo in your negotiations.

BIG PICTURE: Real Estate Investment

Despite what you read in the paper– real estate as a class of investment is not dead.

1) Unlike the capital markets where most of the non-arbitrage related gains take a while to mature, in residential real estate there is ALWAYS low hanging fruit. The residential real estate market is incredibly inefficient with most home buyers chasing the same tasty morsels like a gaggle of chickens while great, out-of-favor opportunities stagnate. Example: .6 acre lot at 40 Wolfback Ridge in Sausalito. A first-grader could make money on that one today in the midst of the chaos but the flock has long since brushed it aside…

2) Successful Real Estate investing has turned into a longer term play for investors who see opportunities, cycles and familiar patterns from a mile-high (i.e. everyone that cares to step back from the ledge). Real Estate investment has always been a location based phenomenon– and now is no different. The next 24 months will be an incredible opportunity for longer-term investors to invest in areas with good long-term relative demographic & employment prospects combined with constrained supply (example: the closer, commutable areas of Marin County).

Marin County Trends:

The current market conditions depend less on where your property is located than on the listing price of the home.

Homes are trading at a quicker pace in the less expensive parts of the county primarily due to lower price points:

Clear improvement county wide:

The pace of unit sales for Marin County Homes for the second quarter is positive:

If you ever doubted the seasonality of residential real estate, this should bring you into the fold. Note the gradual improvement:

Marin County Real Estate average prices: downward trend with a clear bounce by price and $/sqft.

Please call me at 415-867-6611 or email me at Dave@TheDuPontGroup.net to set up a time to talk. Our primary marketing website is www.TheDuPontGroup.net and a Marin pricing tool can be found at www.HomeToggle.com .

Most rebounds in Marin County real estate begin in the low end of the market and move up the price spectrum;à liquidity in the lower end enables both growing families and advancing executives to trade up into larger houses: adding incremental demand at higher price levels.

The current market rebound is no exception: the current action in the market (while well below peak market levels in terms of both price and unit sales) is much better relative to the pace of sales in 2009. Price levels show widespread marginal improvement in Q2 and year to date relative to 2009.

This market cycle started in November 2009 and reached the ‘mid-high end’ about 6-8 weeks ago.

Activity in the lower market segments in all towns is still brisk as you can see in the below graphs

<!–[if !supportLists]–>· <!–[endif]–>Activity in the middle+ market segments $1mm+ is decent: recently remodeled homes in acceptable locations are still selling for what I consider to be very decent prices. Homes which require remodel are not moving for several reasons: 1) because recession buyers want to hit the ground running 2) Buyers want clarity on what their final costs will be and remodeling in Marin is notoriously opaque on permitting and construction costs, 4) Most of the people actually buying are families and they don’t want projects; and 3) sellers don’t want to price their homes to actual sell in a market where buyers require a discount for both the project, but also for the cost of living while the work is done.

<!–[if !supportLists]–>· <!–[endif]–>The ultra high end has been disastrously slow and will likely stay that way until sellers clue in on the economy, pricing, and the secular directional change in the market (more on this below). Example: The Average listing price of a home on the market in Belvedere is over $5m. Example #2: There are over 40 properties on the market and only one is in contract. Example 3: I have refused all home listings in Belvedere on grounds of pricing: high costs, high maintenance (successful people don’t like losing money and its always the realtors fault) and the homes aren’t sell. Sounds fun—eh?

The difference in this recovery is that the secular direction of the market has changed. In most past recoveries, the longer-term trend in home prices was up and the counter trend was down. In this market rebound the opposite is true—the longer term trend is down with counter trend bounces.

Why would anyone buy a house when the longer term trend is down? First—calling the bottom in any market is very difficult—real estate is even more so because affordability and pricing are not always the same due to changing levels of interest rates, and the advantageous effect of low fixed mortgages during times of inflation (inflation is coming, after a period of deflation) . Interest rates are at 30 years lows which combined with 20%-30% price decreases make housing remarkably affordable relative to the past 15 years. The direction of interest rates leads the direction of prices—interest rates will have long bounced above 6+% before the first person makes a significant capital gain on a residential real estate play.

Second, primary homes are not really investments—especially for families with children. This isn’t to say we make ill-conceived investments in real estate (although unfortunately buyers seem to have a habit of it)à its that the real investment return on a primary home is measured in more than the actual dollars returned at the time of sale. Home buyers will need to get used to the fact that living in a house is a investment return in and of itself, and the tax deductibility of mortgage interest is icing on the cake. Actual price appreciation will be unlikely until inflation rears its head later in the decade.

Marin County Trends

The current market conditions depend less on where your property is located than on the listing price of the home.

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