Q1 2011 Marin County RE Review

April 13, 2011

Filed under: 1. Marin Update — dwdupont @ 1:00 pm

How do you define “Real Estate Recovery”?

Our definition for the purposes of this update defines real estate recovery as “liquidity, with fairly stable prices”. Put simply: sellers can find buyers; and prices are fairly stable with marginal changes.

The recovery of Marin Real Estate is in stark contrast to other real estate markets that pepper the national map. Where foreclosures are still very high, inventory of homes for sale is very high, where  new homes gather cobwebs, and prices are 30%-60%+ below the peak with no real solution in sight.

Local real estate prices are a function of local labor markets and the future prospects of the local labor markets. The evaporation of manufacturing jobs, and the rise of the service economy has left our more rural economies and tertiary cities with few employment opportunities. Stabilization of  home prices and unit sales is irrevocably bound to the diversification of employment opportunities in those locations

Nationally, “the Recovery” is uneven. In the top metropolitan economies such as San Francisco, New York, Chicago, parts of LA, Seattle,  Dallas and other grade “A” cities, the recovery continues.  Real estate prices are still falling in tertiary cities like Sacramento, Reno, Boise and rural locations.

The commercial real estate market for office space in San Francisco has come alive and is a prelude to increased demand in Marin County in 6-12 months. We went to a panel of commercial real estate entrepreneurs in San Francisco 3/30/11 including Maxwell Drever, Doug Shorenstein, and Stuart Shiff and they are all positioned for liquidating in the next ‘up’ market– i.e. they know the cycle has turned and are ahead of the curve. Their message about the market for commercial opportunities was : if you are waiting for “the bottom” it has already passed. The “generational opportunities” you heard about in the press were few and far between. There is a mountain of global money chasing cash flow from the best buildings in the best locations in the US—and these are trading at attractive prices. Older assets and those in sub-par locations simply aren’t trading or are going very cheap.

The residential real estate markets in Marin are very similar to SF commercial, and is a tale of two markets: Updated homes in preferential locations continue to sell at premium prices. Dated homes and or those in less desirable  locations are a real challenge. The cost of building was very expensive and now has increased slightly during the recession. Most buyers in Southern Marin are families and they can’t stomach a long expensive project.  More importantly, the post-construction cost for updated homes is not recoverable in the current market unless the house trades marginally above lot value.

This trend of homes trading close to lot value while updated homes trading at premium prices will make value in our real estate markets extremely difficult to discern using $/SQFT from market comparables. All automated valuation models (AVMs) like Zillow will be even less accurate then they already are (median error of Zestimate is about 12.5%).

 SELLERS:  Two lasting traits of the “Great Recession”:

First, home buyers are extremely value conscious. Homes need to be priced within a “Window of Perceived Value (WPV)” in order to garner offers. Otherwise, buyers will pass on to the next opportunity. If homes are priced “to get my money out”, the sales cycle may be long–  especially if you bought in the last 5 years.

Second: If the home isn’t updated it will likely sell closer to lot value. The cost of construction both in terms of time and money combined with near lunacy at the Marin planning boards, is just too expensive for most buyers.

Marin County is a very transitory place with only ~45% of the population living in the same house for more than 5 years. Buyers are more rational now in their expectations of both their time horizon, and buying versus renting. If they can’t find something acceptable they just rent.

BUYERS:

This recovery is all about location and San Francisco is one of the few premium areas poised for continued recovery as commercial office building data foreshadows. New SF offices bring new jobs, and jobs bring home buyers. Demand is strong right now in the lower market segments but slow in the higher end as the charts below indicate. Your biggest concern should be inflation (or stagflation as the case may be)… The loose global monetary policy of the previous few years at some point will bring very quick spike in prices similar to what was seen in the late 1970s when inflation went from 6% to 15% in several months.  The timing on this is uncertain, but will likely coincide with a significant event like a change in global reserve currency or the bankruptcy of a US state or municipality. Real estate is not a bad investment during times of inflation especially in preferential locations close to diversified employment markets. The key is locking in long term interest rate before interest rates spike. If you are keen on buying, please call me and lets put this data to good use in negotiations.

 

When you look at the below Real Estate charts you are seeing most data points hitting news lows. Please reference each town page for more specific and pertinent data for each town in Marin.

The long-term direction of Marin County home prices is positive and shows a bottom placed in 2009. The rate of improvement county wide is slowing. The health of the real estate market is less about price increases than about continued liquidity.

Marin County Real Estate Prices having a fair quarter. Prices of Southern Marin homes for sale are fairing a bit worse.

Liquidity for Marin County Homes is  struggling more in the high end.

 The data below shows that 35% of the homes on the market are in contract. This is a very high statistic and representative of a healthy real estate market… however homes priced above $1m are not as liquid but much better than its been for several years.

 Mill Valley CA homes, Tiburon CA Real Estate and Beveledere CA property had a tought Q1.

 Sausalito CA real estate however did better. Please read the Sausalito homes page.

 

The DuPont Group is a dynamic real estate team active in Southern and Central Marin communities. Dave received his MBA from Pepperdine University and is a Certified Financial Planner (CFP). Please call or email us anytime for more information.


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