How Low Can Rates Go?

I have to admit that I really did not see this coming. What am I referring to? Well, mortgage interest rates that is and their recent and dramatic slide. First, a little background on the basics; The Fed has kept the Federal Funds Target Rate at a historically low .25% since the beginning of 2009. That is compared to 6.5% in June of 2000 at the height of the Dot Com market which went down to a then historically low 1% by January of 2004 as we were digging ourselves out of the first recession of the decade. It was that condition, of course, coupled with relaxed regulatory constraints that set us up for the next and bigger Great Recession in late 2007 when the Fed rate topped out at only 5.25%.


Rates Falling Faster Than Gravity
I think it was fair to say that the overall consensus was that as we entered the spring of this year that the country was on a slow but predictable growth curve that would strengthen as we got into the second half of the year. In fact the market saw it that way as well. Below is a chart that shows the 2010 trend for the 30 year fixed interest mortgage interest rate for conforming loans. The valuation of the interest rate started out at just over 5.00% in January and increased as the spring selling season hit its cyclical stride in April when it topped out at 5.10%. But then something happened. Was it the expiration of the first time home buyers credit on April 30th? Perhaps, but that was not a likely big influencer. No, it was unemployment and fears of a double dip recession. Remember the notion that the second half of the year would bring accelerated economic growth? Well, it didn’t happen and the market predicted a much slower demand for loans…which were already tough to qualify for. Hence the rates slid off a cliff and by August were down to its lowest recorded rate ever: 4.43%!! (Source: Freddie Mac Monthly Average Commitment Rate On 30-Year Fixed-Rate Mortgages).

And What Happened to Marin Home Sales?
So what happened locally in the post-April time frame? Before we get into that, it is important to acknowledge that the average Marin buyer qualifies for loans more frequently than the rest of the market. That means that more buyers can actually take advantage of these low rates and get a loan to purchase a house. This is not the case in the broader regional and national market as a whole. The net result is that, despite the expiration of the first time buyer credit and news of impending economic doom in the form of a double dip recession, buyers continued to buy. Before the market headed into its predictable summer slump sales continued to accelerate through May and June as we see in the chart below.

In the chart below we see the above trend mapped against the interest rates trend. Are rates headed down some more? That is something no one can predict but certainly rates are very attractive these days.


So What Will Happen This Fall?
As most of you may know the largest volume of home sales in a year occurs from mid-march to the end of June. That is followed up by a smaller, yet not insignificant, “fall selling season” which typically runs from mid Sept and up to early November. In terms of rates, they very well could continue to be soft through the fall. I also am seeing properties, especially at the higher end of the market, moving as well. If you are looking to upgrade into a new home and you can qualify for a loan, then I think it is safe to say that this is a rare opportunity to secure a loan at a historically low rate. That said, do not be surprised that when you find that ‘must have’ move-in quality home with a view and high end finsished that competition is there to bid up your offer. For those of you who are thinking of selling, the premium is on “done” properties so make the investment to fix things up, stage and put your best foot forward into this unique market.

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

Demystifying the “Pocket Listing”

This may be an observation about human nature more than anything else, but most buyers that I work with always ask to be notified of any new listings that I may know of before it goes on to the MLS. “MLS” by the way stands for Multiple Listing Service and is the centralized system that provides information about all listed properties. You can actually look for listings yourself based on specific criteria on the MLS which can be accessed from a link on the left hand side of my web site. This is a fairly recent development as it used to be that only professional realtors had access to the system. I digress, but the point is that with information in this industry becoming more pervasive so has competition for prime properties as they come on the market. Why do most people ask about these unlisted properties? Why, to get a good deal on a great property of course! Without competition there is always the hope/chance that something special will pop up and a good price can be negotiated.

Defining the Pocket Listing
There is actually a mechanism in our business to market properties that do not go on to the MLS and that is called a “pocket listing”. In short pocket listings are when there is a signed listing agreement between the broker/agent and seller to sell a property but without the exposure through the MLS and usually without any other exposure except word of mouth. As a percentage of all listed properties it is minuscule, but that said I am aware of a decent number of pocket listings in prime communities here in Marin. So why do sellers opt for this type of listing? The reasons vary, but the listings typically apply to higher end properties which involve more complex transactions. Reasons why sellers might choose to go this route include;

• Testing the market value and interest level of the property.
• Sellers might not be 100% ready to sell but if the right buyer is ready, willing and able they would.
• There may be a strong desire for privacy and a quiet sale.
• Do not want unqualified buyers wandering through their home .
• Sellers might be in the process of looking for a home to move to-but not yet found one.

Weighing the Upside and Downside for the Seller
Ultimately, the seller must decide if exclusion from the MLS is in his/her best interests and does not limit exposure on the market. Sometimes sellers ask about treating their property as a pocket listing. People have often heard the term, but don’t always understand either the benefits or downside to having their property sold off the market. When a property is marketed directly to other agents and their buyers I am usually only showing the property by appointment and there are no open house showings.

There are benefits. Perhaps the sellers don’t want to do, or pay for the preparation work involved in bringing the property to market. As their agent, I want the property to show its best and sometimes that means the sellers are looking at some extensive and potentially expensive work to prepare the property for market including; packing and placing their items in storage, dealing with both structural and cosmetic repair work, and staging for their property. Then during the marketing period there’s personal disruptions including multiple open houses a week, evening showings, private showings and often people peering into the windows and ringing the door bell because there is a for sale sign on the property. Or perhaps, it’s a couple with young children and they just can’t tolerate that process, or a seller who just wants to quietly sell without all the neighbors knowing or coming through the home. They want to sell, but they don’t want the public exposure that comes with the marketing of the property. An off the market sale or pocket listing can make sense for them.

What’s the downside? Well, I always tell sellers that they will never know what the property would have sold for on the open market. There’s always a question as to whether they received the highest and best price. But each property sale is a snapshot in time, and perhaps the difference would be small. But if the home had been properly prepared and marketed, would the seller have received a better price? They will never know, and they need to be okay with that. It’s a trade off, but if it works for the client, that’s fine.

So How Many Are Actually Out There?
Let’s start with the top level numbers. In all of Marin County there are 1,095 single family homes currently listed. The actual number of pocket listings is not a known quantity as different firms have different ways of communicating and tracking them. Many firms have no way of tracking them. At Pacific Union we have a means to track internal pocket listings and currently we are tracking 33 pocket listings, which equates to 3% of the market. The average listing price comes in at a whopping $2.7m, which backs up my earlier point about these being typically higher end properties in higher end communities. In the mix is one $10m property with a couple $7m properties right behind. Below is the breakdown by community for the pocket listings available:

• Belvedere: 1
• Fairfax: 1
• Kent Woodlands: 2
• Kentfield: 3
• Larkspur: 1
• Mill Valley: 8
• Novato: 2
• Ross: 4
• San Anselmo: 2
• San Rafael: 3
• Sausalito: 1
• Tiburon: 5

So if you are interested in learning more about pocket listings, feel free to contact me and I’ll be happy to explain more and discuss these unlisted opportunities and your real estate needs. I am always grateful for your referrals.

Sharon Kramlich
Top Producer
Pacific Union International Real Estate/Christies Great Estates
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

Marin County Schools Rank at the Top in California

The results are in and the word is out that Marin’s schools are tops in the state. According to a May 14, 2010 article from the Marin Independent Journal, “Marin had 21 schools with API scores of 900 or greater - including every school in the Kentfield, Larkspur, Lincoln, Mill Valley, Nicasio, Reed Union and Ross school districts - up from 15 last year. The Reed District's Bel Aire Elementary and Reed Elementary tied for Marin's highest score with 951. Other top-scoring schools included Kentfield's Bacich Elementary, Mill Valley's Old Mill and Park Elementary and Novato's Rancho Elementary School.”

Families Are Moving North
Factors such as great weather, a reasonable commute to San Francisco, a beautiful environment and top notch public schools are fueling a mass migration of families north of the Golden Gate. In Mill Valley, for example, every school in the district received a statewide rank of 10. The above mentioned migration is resulting in an unprecedented increase in student enrollment in recent years. The current level of elementary student enrollment is at about 2,700 students which represent an amazing 20% increase from 2006 when it was only 2,288. These increases, though, do not come without a down side. The county schools do not receive additional state funding as a result of such enrollment increases, which when combined with the state budget cuts are causing great pressures on these schools. To counter the budget and associated program cuts in areas such as arts, drama and athletics, many school districts have private fundraising efforts that are counter-balancing these cuts.

It is difficult to know how long parents and the rest of the communities can plug the gap, but for the time being the schools continue to perform and provide a very high quality education. See the Marin IJ chart below to get the specific details about each school from every district in the county.

As always, feel free to contact me about your real estate needs and I am always grateful for referrals.

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
http://www.sharonkramlich.com/

The $2m+ Market Finally Awakens: The Tale of 35 Bigelow in Mill Valley

For the last 6 months I have been chronicling the slow improvement in the Marin real estate market. If you may recall, about six to nine months ago we saw the sub-$1m market in the northern part of the county show some initial life. Since then we've seen a slow creep of similar improvement south and finally in properties at higher price points. In my last newsletter that trend was showing signs of becoming a reality as homes in southern Marin in the $1m-$3m price range were showing signs of increasing at a rapid rate and edging towards becoming a seller's market. In this edition we'll recap on today's data and then I'll talk about a property that I was listing last year at 35 Bigelow in Mill Valley that initially came on the market in 2008 at $2.85m and just recently sold after the listing price had worked its way down to $2.15m. I think the sale of this property is fairly emblematic of what is happening in the market and I'll provide a case study on the history of the property's 2 year journey from initial listing to eventual sale.

Today’s Market
First, the hot-of-the-press data. I have often called out in recent newsletters the way that we measure buyer or seller markets as being the percentage of homes actively being listed on the market vs those in contract. My last newsletter pointed out that the $1m + market was gaining momentum and recent data is only reinforcing that trend as shown in the chart below. Across the county single family homes in the $1m - $2.5m market space especially are trending up,

Another way that can measure how 'hot' the market is becoming is shown in the chart below. For 13 higher end communities in Marin we're seeing a trend towards a higher volume of active listing, while in parallel seeing a trend towards properties moving off the market faster. While the volume of "Active Listings" is now increasing towards 900, the "Days on Market" (or DOM) metric, which measures how long properties are actually on the market from the time that they are put on the market, is declining rapidly from almost 100 days to just over 90 in a span of only a month. This means that despite the increasing rate at which inventory is being added, demand is strong and outstripping the supply. This phenomenon is exactly the opposite situation from what was going on a year ago as properties languished on the market.

So what to make of all of this? First, as with any data, you have to read between the lines to get the full picture. While it is great to see the DOM decline like it is, it is very likely that a good percentage of those "new" listings are actually listings that came off the market earlier and have come back on. A property's true cumulative DOM would therefore be much higher. That said, I think the buying public is really beginning to see that the continued decline of prices in better communities in Marin are probably over with prices largely stabilizing. Furthermore we are seeing a trend towards higher interest rates for 30 year mortgages in conjunction with a more fluid market for actually getting loans. Combine these factors with a cautiously optimistic economy and its prodding buyers into action and thus the market is seeing a corresponding rise. The scenario above is something I have experience first hand and a real world case study may help illustrate what is happening. Last year I had a listing in Mill Valley that recently went into escrow and in the second part of my newsletter I'll detail its listing history. Read on...

The Triumphant Tale of 35 Bigelow in Mill Valley
This is a wonderful remodeled 4 bedroom/4 bathroom Craftsman style home that has been extensively remodeled and in typical markets would have only been on the market for only a couple of weeks at most. It is located on a street to street block in the highly sought after Blithedale Canyon area just 3 blocks from downtown Mill Valley. It is easily accessed from both West Blithedale and Bigelow streets and overlooks a charming and private garden on one side and majestic redwoods on the other. You can easily walk to school, to many of Mill Valley's restaurants & to hiking trails. It's an easy commute to San Francisco and close to Mill Valley's award winning schools. Like I said, this is a great home in a great location and should be highly valued.

This home initially came onto the market in May of 2008 at $2,85m and at 2,500 sq ft this equaled $1140 per square foot. That was certainly expensive, but given the recent run up in value over the prior 3 years, I can see how the price could have been rationalized. In May 2008 I seem to recall not having that much anxiety about the future of the economy, but like many others I was concerned about where the lending market was heading and the horde of speculators operating in the real estate market. The property came on late in the spring season and no concrete buyer stepped up so the owners took it off the market and made some improvements to property. These included a 2nd main entrance added to access the home from the West Blithedale side, which increased its overall value and appeal. It came back on the market again in the spring of 2009 at a reduced price of $2.4m and that price reduction spurred a lot of traffic at the Sunday open houses. As I hosted those events myself I regularly saw many repeat visitors, but if you may vividly recall that was a very tough time for many people to step up to purchase a new home. On top of that many buyers thought perhaps that prices would continue to decline.

And yes in fact prices did continue to decline as they did at 35 Bigelow and in the market overall. The property came off the market again in late 2009 and came back on this spring at 2.15m and in March finally was sold. That final sale price of $2,149,000 was nearly $700k off of the original 2008 listing price. As I mentioned above, it was not uncommon to see repeat visitors at my open houses and indeed, in the end, the new owners were one of those repeat visitors that obviously were waiting for the best time to go ahead and make their move. Good for them and the above story is being repeated at a number of other listings in Marin.

My Parting Thoughts
So has the market turned the corner? My personal opinion is yes, but that only means that the market is climbing its way back from a long hard slide. I don't expect to see prices sliding at the rate they did before and I don't expect to see prices rising quickly either. That said, if you have been sitting on the sidelines like the buyers of 35 Bigelow and have had your eye on a high quality property in a great location, now may indeed be a great time to make the deal of a life time. And for sellers it is by far the best environment to list in the last 18 months.

As always, feel free to contact me about your real estate needs and I am always grateful for referrals.

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

February 2010: Looking Towards Spring 2010

February 2010

In recent Marin Insights I have talked about how properties are selling in different regions of the county with those cities with a higher percentage of lower priced properties seeing the highest level of sales volume. In the Fall newsletter I pointed out the average selling price for a home in Mill Valley had fallen below the one million dollar mark for the first time in many, many years. While volume has indeed seen a fair amount of improvement it has come at the expense of property values. While lower price-range properties still account for the majority of sales volume across Marin County, we are beginning to see upper range market segments beginning to show some vigor as the market gets ready for the (typically) higher volume spring real estate season. In this edition of Marin Insight, I’ll be looking at the sales activity for different market segments in recent months and how they related to last year and I will offer some insight into what the market may look like later this year.

The State of the Market
To get an idea of where the market is, we need to understand what the market is doing. The table below illustrates the comparable volumes of active listings for the market segments that the real estate industry tracks. What is noteworthy here is the comparatively large jump in new listings in the higher end brackets of the market. Based on my experience in the market, I see a couple of reasons for this. The first has to do with pent up supply as prospective sellers chose to “ride out the storm” in hopes of a more conducive market emerging in 2010 that would a) be a better financing market enabling buyers to buy an upper-end property and b) be less prone to discounting with the expectation that there will be more buyers in the market than in the previous year or two

So What is Actually Selling?
In past newsletters I have talked about an industry metric wherein the ration of properties in contract vs, the available inventory measures 30% or above is classified as a seller’s market. I have cited this by region and in this newsletter will look at the data by market segment. As the chart below signifies, the sub-$1m dollar properties are still enjoying robust sales activity with about 50% of the available inventory in contract, which is fairly remarkable considering the high volume of supply. What about the rest of the market? The $1m-$2m properties are seeing decent gains with 30-40 properties in contract representing about 21% of the inventory, while in the $2m-4m market roughly 10-15 properties are in contract representing about 17% of the inventory. At the very high end of the market, the $4m+, it is still relatively weak with only 2-3 properties in contract. You have to understand, though, that in the year prior there were NO sales at all in the same period! This brings us to our next point which looks at the change from last year to put these figures in some context.

A High End Market Slowly Digging Itself Out
So we have talked about how the low end of the market has been driving the market for the last year and also seen how the higher end segments are beginning to come to life. But to what extent have they come to life? The chart compares the properties actually in contract this year vs. last year. I could not include the $4m+ segment as last year there were no sales at all meaning that you cannot even compare the increase in percentage terms! That said what we see is that the percentage of change in the low end has remained relatively constant compared to the year previous. Where the biggest jump has occurred is in the $1m-$2m range as buyers are snapping up the highest quality properties that may have even been valued in a higher bracket in years past. The $2m-$4m market is seeing a strong gain. It is in these numbers that we can begin to form some perspective on the coming spring.

A “Better Than Last Spring” Spring
We in the real estate profession are not feeling like it’s going to be a banner spring, but certainly one that will be better than the year previous. As the data points out, we are anticipating a lot more inventory coming onto the market in the year at the higher end price categories and more buyers coming in to shop for them. Like we saw in the sub-$1m sales activity of the last year, buyers will be focusing on the highest quality properties and will expect to have some leverage at the higher end price points. For high-end sellers the good news is that buyers may actually be looking at properties in those segments, but anticipate buyers that are still expecting a deal. As the data points out, it is still a buyer’s market and will likely be so for the high end market throughout 2010. For buyers the capital markets are normalizing which means you may have more purchasing power and homes in the high end of the market are at historic lows. It all points to a chance of a lifetime to purchase a unique and high quality Marin home.

As always, feel free to contact me about your real estate needs and I am always grateful for referrals.

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

January 2010: Pacific Union's Q4 and 2009 Year-End Review

January, 2010

Welcome to 2010! To kick off the year I have Pacific Union's Marin County 2009 fourth quarter and year end review for you. I hope you find the information valuable and I look forward to working with you this year.

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

When Will Marin County Real Estate Markets Return To Normal?
We are approached daily by our clients with requests to predict what will happen in our local real estate markets in the near future. To shape our perspective, Pacific Union researched Marin County single family home (SFH) sales and indexed them (on a units-sold basis) to multiple benchmarks including: interest rates (10 Year T-bill), unemployment (SF Bay Area) and an absorbability index (income vs. cost of ownership). We continue to struggle to find direct correlation between Marin County real estate and these available indices.

We have found a relationship worth noting between the total number of Marin County SFH (supply), the total reposed sales (demand) and the annual rate of appreciation (%). The chart below illustrates the following: Supply, since 1999, increased an average of only .38% per year; Demand (closed sales) averages 2,352 units, or 3.62% of total supply; Appreciation averaged 6.50% over the past eleven years but has decreased -.35% over the past five years.

The rate of demand is a key variable for Marin County real estate. In four of the six years where demand has exceeded the average (3.62%), we have experienced double-digit appreciation. In 2002 and 2003, the demand exceeded the eleven-year average, but we did not realize double-digit appreciation. Demand for SFH in Marin County has fallen 52% since the peak in 1999. Our SFH sales in 2009 are 1,650 Units or 70% of the eleven-year average making 2009 the 2nd slowest year in the past eleven.

In our view, recovery to a normal market (demand of 2,352 units or 3.62% of supply) will require substantive shifts in the overall financial landscape including, but not limited to, stability in financial markets, a strong local employment trend, affordable interest rates and strengthening consumer confidence. It is difficult to predict the future and ''normal'' may return with a somewhat new definition. As for our outlook, we are prepared to do business in current market conditions throughout 2010.

Year-to-date, Marin County continues to see substantial decreases in demand (units sold) vs. 2008. To our benefit we see only pockets (both price ranges and geography) of average or median price erosion (see chart below). We are encouraged to see Marin County QTD volume up in all segments. By contrast, California markets with significant excess inventory (supply) are experiencing prices and units sold down by well over 40% year-over-year.


Pricing a home in this market is clearly our most important role and a significant challenge. We rely on rigorous methods of analysis and proven results to demonstrate our success. How all of these dynamics relate to you, your desired neighborhood or specific home requires a focused analysis similar to the one above. If you have questions or concerns, please do not hesitate to call on me.

Year to Date Key Metrics

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