Fall 2009: In Mill Valley the Luxury Market Takes Off

Fall 2009 Marin Insight Newsletter

In Mill Valley the Luxury Market Takes Off

In our summer newsletter we wrote about how the market was shifting from a buyer’s market to a seller’s market…at least in Northern Marin where affordability was the key driver. In the Southern Marin luxury market it was still largely a buyer’s market, but we thought that for highly desirable areas like Mill Valley we would see the market stabilize and move towards a seller’s market by the end of the year. In this edition we’ll take a look at 2009 and see where market is this fall and weigh in on what the considerations would be if you were considering buying or selling a home in Mill Valley.

The Basics of Economics: Supply & Demand

With the exception of December the median price of a home being sold in Mill Valley in 2008 was almost $1.4m. The median price in 2009 is $992K thus far. Wow! That’s a ½ million dollar drop off in home sale value in one year. In the first quarter of 2009 we also saw a huge drop off in supply as people took their homes off the market and those considering selling held off. In Mill Valley there were nearly 200 homes on the market in September 2008 and by January 2009 is was down to only 125. In conjunction with the rapid withdrawal of supply was a corresponding withdrawal in demand in the first quarter of the year as evidenced by the dramatic fall off in homes going into contract.

Let’s face it, though, Mill Valley is a great place to live and with average selling prices down below $1m for the first time in many, many years you could expect that buyers who could *would* swoop in to make the deal of a lifetime. And they did. From March to June a lot happened: The average selling price jumped up above $1m, inventory flooded back on to the market and deal volume jumped dramatically. As the best-of-the-best properties were sold it was not surprising to see the deal volume subside along with the traditional “summer swoon”.

Was the Spring 2009 a Blip or a Trend?

In terms of unit volume supply and sales, we are clearly seeing a stabilizing market as evidenced by the trend lines moving from summer to fall. One way to measure if the market favors buyers or sellers is to look at the ratio of properties for sale vs. those being sold. At the height of the buying market in 2007 the ratio was about 18%-20% meaning that nearly 20% of the available supply was being sold. That’s a healthy chunk of the available market and was clearly a seller’s market then. Looking back at the 2008 it’s hard to fathom that the ratio in May was a strong 18% and by November it was an unheard of 5%! That’s a 2/3 drop-off in 6 months. 2009 did not start much better and we began the year much like 2008 ended with an anemic 7%. In fact by the end of winter it sunk even lower to 6%.

As we pointed out when looking at the unit volume figures the sales activity quickened dramatically from March to May and we saw a jump to a healthy 14%. What leads us to believe that the buyer’s market is very likely behind us now is that the subsequent ratio has stabilized and in fact if you look at the rate of change in the last couple of months it is increasing and leading the market toward a stronger seller’s market.

What to Do Now?

If you are considering buying, it’s safe to say the days of finding a move-in quality, high end home at a bargain price are now largely behind us. There are still good opportunities out there, but it’s likely that a buyer’s leverage is ebbing as we look to the spring of 2010 when demand traditionally picks up. Sellers now have a better market to operate in, but a key component of being successful is smart pricing. As mentioned earlier, in 2008 the average price was $1.4 and is now closer to $1m. Thinking that your 2008 value will stand up in the market today is not a good strategy. Your home will linger on the market and loose appeal if overpriced. As of September there was a 2 year record of 211 properties on the market. So while the desperation that many felt in the earlier part of the year is behind us, the buyer has a lot of choice and will choose the best combination of quality AND price. Be smart and price to get interest and action.

Sharon Kramlich

Top Producer

Pacific Union Real Estate Estates Division

415-609-4473

skramlich@pacunion.com

www.sharonkramlich.com

Is Marin a Buyer’s Market or a Seller’s Market? Surprise! It’s Both!

For what seems like a long time now, it has felt like we have been in a firm buyer’s market here in Marin. That has and continues to be the case for a lot of the county, but not all of it. If you look at the most recent data, the northern end of the county is in a full fledged housing boom, while the southern end is still an emerging market. To understand what is happening here you need to know what defines a “buyer” versus a “seller” market. The real estate industry’s measure of a seller’s market is when the percentage of available housing inventory is above 35%. Conversely when 25% or less of available inventory is in contract it is a buyer’s market. The range between 25% and 35% is considered a normal market. Now lets see how these figures play out in the various real estate markets across Marin….

Affordability Rules!
The credit market is now considered ‘back to normal’ by most economist’s standards and with low interest rates for conforming loans (that is the key) the past couple of months have been a great time to buy less expensive and/or foreclosed homes. In fact over the last 90 days we are seeing price stabilization in properties up to $700K This is bearing out in the northern end of the county dramatically with more affordable communities like Novato swinging into a strong seller’s market, where the median price of a single family home has jumped from a low of $492K with 9.3 months of inventory in February to $612K and only 2.6 months of available inventory in June. Other more affordable communities like San Anselmo, Corte Madera, San Rafael, Fairfax and Greenbrae are quickly trending in the same direction. The key is that in many of these communities it is very possible to purchase a home with a conforming sub-$729K loan with reasonable interest rates and less stringent loan criteria.
The Luxury Markets and Jumbo Loans
Remember when it seemed that listings in exclusive communities like Ross, Belvedere and Kentfield would sell even before they hit the market…and at a premium!?! Those days are long gone as evidenced by high inventory levels and the percentage of homes in contract at an anemic 10%. To understand why this is happening I’ll quote Pacific Union’s CEO Avram Goldman who had this observation about the higher end of the market;

“There are still challenges in the million dollar plus price range. Inventories are building and days on market are increasing. The million dollar plus market is hampered by lenders’ apprehensions over value. The lending industry feels prices will continue to drop and are requiring larger down payments, solid gold borrowers and, in some cases more than one appraisal. They are also concerned about the potential inventory that will be created when lenders begin to foreclose on homes whose mortgages are currently delinquent.”

When Will the Higher End Emerge? A Look at Mill Valley.

You can count on the fact that as the economy recovers and the housing market gets stronger the trend toward normalization will continue from the left (Novato) to the right (Sausalito) over time. How long that will take is anyone’s guess, but it’s a safe bet to predict that Mill Valley will be the first of the higher end markets to emerge into the “normal” range. As of June the median price in Mill Valley was a relatively high $1,200,000 which is well up from the January lows of $812K. The upswing in prices reflect buyers coming in and taking supply down to a 12 month low of only4.8 months, which is well off of he 16.6 month high from last November.

While the surge in property sales were a welcome trend the corresponding reduction in inventory was probably a factor of those sales along with weary sellers taking their properties off the market and waiting for better days ahead. Although there are no figures to support this, you can bet that there is a good supply of inventory in Mill Valley and other high end markets that are simply waiting to go on the market when sellers feel that they stand a better chance of getting their price. The good news is that this new inventory will filter into the market over time and not flood the market much like what we saw happen in last fall and early this spring. Despite this ‘phantom inventory’ the stage is likely set for Mill Valley to emerge from a “buyer” market and into a “normal” market in a reasonable amount of time.

“When do you think that prices will hit bottom?”

The questions that we keep hearing over and over again is “when do you think that prices will hit bottom?” and “is it a good time to buy now or should I wait?” On the issue of prices we hear thoughts from clients that range from thinking that they have already hit bottom and are actually on the way up to others think that they will continue to decline for years to come. So what do we think? Good question and the truth is that we nor anyone else can tell you for certain. What we can tell you, though, is that the past often is a good predictor of the future, so we have compiled data from the multiple listings service (MLS) that looks at unit volume and pricing trends over that last 34 years with recession dates superimposed to try and get some answers about what lies ahead. Read on…

Units Sold Analysis

The data below represents unit sales volume on a year by year basis as indicated by the orange bars. The black line represents the moving average while the red bars at the bottom show the recessionary periods over the last 34 years. What is obvious is that recessions indeed influence unit volume sales. The steep drops in ’78-’80, ’88-’91, ’99-’01 and ’05-’07 actually occurred in advance of the actual recessions themselves, which is something to think about in terms of seeing these real estate market movements as a leading indicator of impending economic peril.

Average Sales Price

AnalysisSo what about prices? Common sense could lead one to think that an economy in peril would cause prices to drop at rates similar to unit volumes. In all years past prices only flattened at worst. It is clear, though, that we are not in a situation today that is comparable to past downturns as last year saw the first substantive decline in actual prices for this available data. That said, the moving average tells a different story. The steep run up in prices over the past 5 to 10 years is offsetting the decline so the moving average is showing a flattening profile. If prices in 2009 stabilize we’ll actually only see a flattening of the overall price average trend much like what occurred in the early 90’s.

Summary

So what would lead us to think that perhaps now is a good time to buy? We are seeing (literally) once in a life time price declines and armed with lower interest rate loans qualified buyers are looking for bargains. For the astute buyer they can be found but it is not the rule. In fact for well presented and well priced properties we are even seeing multiple offers occurring. We think that the upcoming spring season will see an increase in listings and we advise buyers to start looking early. For sellers, it may be time to test the waters while keeping expectations in check. We are definitely living in very uncertain times, but one thing is certain and that is significantly lower Marin real estate prices are a once in a life time occurrence.

We look forward to talking to you soon,

April Figures for Marin + Appraisal Changes Coming

In an effort to keep you infomed we wanted to provide you with some important news about appraisal process chnages and the most recent sales data in Marin County from Q1 of 2009. To view the sales information, just click on the link below.

There is also some additional news about changes in the appraisal process. Effective May 1, 2009 the new HVCC law goes into effect.
Here’s what it does:

Loan officers will no longer order appraisals. Instead they are ordered through appraisal management services. Each lender has a relationship with one or more of these services. Appraisers are, in turn, approved with one or more of these services.

Buyers will pay directly for appraisals upfront. Most likely they will do this through giving the loan officer their credit card info or possibly paying by check in the name of the appraisal service at the time the appraisal is performed. Loan officers cannot take funds from the borrowers OR submit a bill to be paid at escrow.

Appraisal reports will be anonymous at the time they are done. Loan agents will not ever see the reports. Borrowers will eventually be able to obtain a copy but not through their loan officer.

The Rest of the Country Seems to be Stabilizing. What About Marin?

The Rest of the Country Seems to be Stabilizing. What About Marin?
Consider this recent news article from CNN.com on Tuesday, March 23rd that reflects US existing home sales activity:

“Sales of existing homes have unexpectedly risen in February, recovering from a sharp drop in the previous month, according to an industry report released Monday. The National Association of Realtors said that existing home sales rose last month to a seasonally adjusted annual rate of 4.72 million units, up 5.1% from a rate of 4.49 million in January.”

While this news is generally welcome, there is another figure to consider which is price The month to month change in price saw its first increase, albeit very small, since June of 2008 meaning that for the time being at least the steep drops have taken a rest. So while it is impossible to say if these national figures are signaling a definitive turnaround in the overall housing market, it more probably reflects what Alan Greenspan famously referred to a “structured bottom” back in 2002 when describing the lowest point of the last recession

So what about Marin? Are we seeing sales activities increasing and stabilization of home prices here? For starters we have to expect volatility in the Marin trends as a result of the much lower volumes affecting trend movement. January to February existing home sale volumes declined only a mild 4.48% perhaps signaling a similar trend toward stability. In terms of prices we are seeing a lot of volatility with January prices climbing 15.19% and followed in February by a 14.53% decline. We need to see how prices perform going forward, but we expect to see a bumpy road ahead in 2009 as the market figures out what to do. We think that is unlikely, though, that we’ll have another off-the-cliff year as we did in 2008.

So what to make of all this? Are we seeing sales activities increasing and stabilization of home prices here? For starters we have to expect volatility in the Marin trends as a result of the much lower volumes affecting trend movement. January to February existing home sale volumes declined only a mild 4.48% perhaps signaling a similar trend toward stability. In terms of prices we are seeing a lot of volatility with January prices climbing 15.19% and followed in February by a 14.53% decline. We need to see how prices perform going forward, but we expect to see a bumpy road ahead in 2009 as the market figures out what to do. We think that is unlikely, though, that we’ll have another off-the-cliff year as we did in 2008.

Now the Federal Government is aggressively working to re-start the lending market by buying over $1 trillion of bad debt in partnership with private entities. While that is encouraging we are not out of the woods as danger looms in the form of maturing commercial real estate debt that could see large scale default as well later this year. The government’s swift withdrawal of bad residential as well as commercial debt should play an important role in maintaining this nascent real estate recovery.