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 $5m. 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 opposite is true—the longer term trend is down with counter trend bounces.

BUYERS:

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 (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 cost 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 and getting worse. That said– one of the best places to live and work in this soon-to-be 8 year 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 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 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.

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:

You can’t have a double dip if you don’t have an interim peak– and that could be $461/sqft:

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:

Marin County Real Estate average prices: downward trend with a bounce.

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 .

While the general trend in Marin Real Estate is still down, the last 6 months has seen a significant uptick in activity. The activity started in the lower end of the market back in November and picked up steam in the early part of the year. There were several stretches in Jan – March where over 50% of the homes on the market below +- $1M were in contract. This liquidity enabled many folks with growing families and stable employment situations to trade up into bigger homes; and many people to get out of financially unsustainable living situations.

 Activity in the lower market segments has cooled significantly starting in April, worse in May with a bounce in June.

 The upper market has seen better sales compared to the last 18 months, but still very sluggish compared to the prior 7 years.

 Many clients are asking if we have reached the bottom of the market. I don’t believe we have. There are significant headwinds to growth moving forward.  Next year will likely be difficult for real estate with possibly decreasing prices. The depth of the coming real estate pull back in the 2^nd half of 2010 and 2011 will likely be directly correlated with the depth of the stock market pull-back. Keep your Real Estate purchasing power in Cash Equivalents NOT in stocks. Please discuss this with your financial advisors or accountants, and call me with any specific questions.

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.

4/22/10: This update only covers Southern Marin Towns: Sausalito, Tiburon, Mill Valley & Belvedere.

The general trend on the surface is similar to 30 days ago– 32% of the homes on the market were in contract then and same is true now. Some of these homes in contract are short sales and 17 of them are Contingent on the sale of another home which means the real number of homes in active contracts is probably closer to 28%. this is still a very good number and is enabling our local economy to self correct, deleverage and families to move on with their lives.

The feeling on the street however is that things have really slowed down in the lower markets while demand has shifted more up market at least relative to the last 12 months. The numbers don’t corroborate this so we will just have to see where things head from here.

The economic data still points to an increasingly stable economic recovery.

This site works in conjuctuion with www.thedupontgroup.net our primary website and if you have any questions please do not hesitate to call me 415-867-6611.

The Spring 2010 market is off to a roaring start. The momentum started late in 2009 in the lower market segments (bottom 2 price quartiles of each town) and has continued in those market segments. The health of any real estate market originates in the lower market segments and slowly ripples up the price spectrum until at the end of the cycle the top of the market peaks when the lower end has already started contracting—as happened in the last cycle. While average, median & $/SQFT price trends are marginally improving, unit sales are seeing a greater bounce.

At one point at the end of 2009 over 50% of the homes in Marin listed under $1mm were ‘in contract’. Any number over 25% represents a strong, healthy real estate market.  

Currently, 34% of all homes for sale in Marin are in contract—this is quite simply FANTASTIC!!! Thousands of Marin home sellers who were (financially) stressed and/or needed to sell their homes for a myriad of reasons have either done so or are doing so.

• 32% of all homes for sale are ‘in contract’
• 39% of homes listed under $1mm are in ‘contract’.
• 20% of homes listed between $1mm-$2mm are in contract
• 15% of homes over $2mm are in contract
• 8.5% of homes over $3mm are in contract.

Currently the data shows that 32% of the homes for sale in Marin are in contract. However—there is no easy way to compute the number of homes that are in contract which are short sales. These short sales are definitely skewing this number, as the escrows go on and on and one for quite often a year or more; we just don’t know how much they are skewing this current data. My guess is that 10% of the homes in contract (~45) are short sales which means the real number of homes that are in contract is 414—which would translate into 28% of homes that are currently listed for sales are in contract and are not short sales.

Rumors continue to abound of “massive inventory” coming to the market. We have heard this continuously for almost a year– and now I, and DuPont Group buyers, am dubious. Southern Marin higher-end inventory, particularly Tiburon, is still tight, over-priced and not really moving in the upper markets; most homes that are accurately priced, sells quickly. Sellers of higher end properties should pay special attention to the paragraph below regarding risks to the downside…

In 2008 and early 2009 it was originally my belief that that Winter 2010 would be the bottom of the market in many parts of Marin. Towards the end of 2009, and early 2010 it seemed to me that the deleveraging process hadn’t completely run its course, that the political response was deferring the bottom of the recession; that the second tranche of foreclosures (5-7 million) coming in 2010 and 2011 would spook investors– and that the bottom of the real estate market would be a function of a sell off in the stock market. Obviously this hasn’t happened yet and while home buyers should be cognizant of risks to the downside (Ex. Japan deflation), I am becoming slightly more comfortable with the more positive economic assessments of icons Warren Buffett and Bill Gross who anticipate headwinds to growth, and a slower growth environment generally moving forward, with greater regulation—but that the financial crisis and more generally The Great Recession are pretty much over.

Beware Risks Remain!  The current recession was a function of 30 years of increasing reliance on debt to finance many aspects of personal consumption and municipal, state, and national budgets. This primary problem persists. The private deleveraging process takes years to complete; and has barely started. In the public domain, as Bill Gross discusses in his latest ‘Rocking Horse’ piece, unfunded future entitlements have actually increased dramatically since the beginning of the recession with ongoing war expenses, the stimulus packages, the passing of the health care legislation, and decreasing tax revenues.

Marin County occupies a unique niche. Many of the higher-level VPs & executives that staff the peripheral jobs which support the technology industry (legal, marketing, recruiting, finance etc) live in Marin and commute to SF. While the technology industry generally lags the broader economic cycle, that sector’s prospects relative to the economy as a whole are good; which means our relative economic prospects are good; which translates into the long term real estate prospects are good relative to the broader county. Prices are still very high in some areas, and much lower in other areas. Buyers should be choosy, purchase conservatively and keep at least 1 year of living expenses in the bank.

Last, in the ensuing pages you will find detailed statistical information about Marin County Real Estate, its 13 primary towns as well as Stinson Beach data.  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       415-867-6611     or email me at Dave@TheDuPontGroup.net to set up a time to talk.

See Marin County data below:

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%.

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

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.

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:

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.

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.

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.

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.