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Certainly the economic environment and credit markets have deteriorated since June as witnessed by the Government takeover of Freddie Mac and Fannie Mae, the rescue of AIG, the failure of Indy Mac, Countrywide, Washington Mutual, and Wachovia; the consolidation of Wall Street brokerages by large banks and the transformation of Morgan Stanley and Goldman Sachs into commercial banks.
To properly understand where we are in this cycle, it is imperative to look at an historical example: the S&L crisis and resulting real estate bear market of the late 1980's and early 1990's. The only years Marin County average prices declined from one year to the next in the post war period is during 1991 and 1992 when average prices for Marin County declined about 1.5% each year. There was still a great deal of inventory unsold as late as 1995 and real estate really didn't pick up again in Southern Marin until 1997.
Currently, Marin County average prices have declined almost 7% since the end of 2007. On the surface, this sounds comparatively frightening, and it certainly is on several levels; but 2007 saw decreasing unit sales, and very strong high end sales which skewed average price data higher for the year 2007.
San Rafael (-6%), Novato (-19%) and Corte Madera (-8.4%) are seeing the largest average price declines in central and northern Marin. Southern Marin average prices are currently in the black since 2007 with Tiburon and Belvedere showing slight price declines and Mill Valley (+2.5) and Sausalito (+3.7) showing price advances.
Where will we go from here? The primary issue, beyond the passing of legislation to contain the CDO credit market contagion, is consumer debt levels. If you look at the GDP growth since 1947 and compare it to consumer debt outstanding in the same time period (charts below), we see that at least part of the catalyst for America's postwar, long term growth was consumer leverage. Despite the great 20-year real estate bull market, homeowner's equity as a percentage of debt is lower than it has ever been before (Federal Reserve 3/6/08). This will serve to exacerbate the current downturn as it takes time for consumers to correct their personal balance sheets; especially at a time when debt service and repayment as a percentage of income is probably at a cyclical high.
The leading indicator of price trends for higher end homes in the area traditionally was volatility in our capital markets, as executive level job growth in the area has been fairly steady. This may be changing.
The good news: the Bay Area is truly the gateway to the East, America's technology center and a cyclical phenomenon. Tech and biotech job growth is still robust as corporate capital expenditures on technology have been on the books for a while, and companies tend to invest in technology during downturns to make fewer employees more productive—a sister reason to natural beauty why Marin County Real Estate prices are less volatile than almost anywhere else in the country.
A short term concern for higher-end homes in Marin is trading floors and investment banking departments are being pulled back to New York due to consolidation in financial services and banking. This trend in finance jobs may continue for some time and will serve to diminish the pool of buyers able to afford Marin prices.
Why it is still a good time to be a buyer in Southern Marin
One of the issues that got homeowners into the pickle to begin with is the idea that one's primary home is an investment. On the contrary, homes are liabilities (big ones), until they are sold. At that point, the lucky homeowner whose home increased in value might say "this was a wonderful home, served us well, kids had access to great schools and healthy living, and as it turns out it was a decent investment as well." Going forward, hopefully, we will hear the same thing, only the ending may go like this: "and it was a safe place to put our money."
The point here is that buyers looking for primary homes in Southern Marin can take their time and find the right house, at the right time, at the right price. They are buying shelter for themselves and their families, not investments (although ironically, homes and real estate in Southern Marin are probably one of safest places, and least volatile places to invest your money for the next 10 years).
Why it is still a good time to be a seller in Southern Marin
We are still very close to the peak of the real estate market, both in the short term cycle as well as the longer term, post war trend. My concern is that as a function of affordability, home prices may not revisit these levels for some time. If you sold your home in 2005, you would have had more competition for it and may have sold it for 10% more. However, average home prices in all Southern Marin towns are higher than 2005. Bottom line, if you are planning to sell your home in the near term, or want the equity in your home to help finance your retirement years, you might want to get that ball rolling sooner rather than later, as consumer spending growth won't continue as it has in the post war period. Corporate profits will slow, followed by employment, and flat to declining home prices.
Download this document - Q3-Final.pdf
Q3 2008 Market Analysis
Certainly the economic environment and credit markets have deteriorated since June as witnessed by the Government takeover of Freddie Mac and Fannie Mae, the rescue of AIG, the failure of Indy Mac, Countrywide, Washington Mutual, and Wachovia; the consolidation of Wall Street brokerages by large banks and the transformation of Morgan Stanley and Goldman Sachs into commercial banks.
To properly understand where we are in this cycle, it is imperative to look at an historical example: the S&L crisis and resulting real estate bear market of the late 1980's and early 1990's. The only years Marin County average prices declined from one year to the next in the post war period is during 1991 and 1992 when average prices for Marin County declined about 1.5% each year. There was still a great deal of inventory unsold as late as 1995 and real estate really didn't pick up again in Southern Marin until 1997.
Currently, Marin County average prices have declined almost 7% since the end of 2007. On the surface, this sounds comparatively frightening, and it certainly is on several levels; but 2007 saw decreasing unit sales, and very strong high end sales which skewed average price data higher for the year 2007.
San Rafael (-6%), Novato (-19%) and Corte Madera (-8.4%) are seeing the largest average price declines in central and northern Marin. Southern Marin average prices are currently in the black since 2007 with Tiburon and Belvedere showing slight price declines and Mill Valley (+2.5) and Sausalito (+3.7) showing price advances.
Where will we go from here? The primary issue, beyond the passing of legislation to contain the CDO credit market contagion, is consumer debt levels. If you look at the GDP growth since 1947 and compare it to consumer debt outstanding in the same time period (charts below), we see that at least part of the catalyst for America's postwar, long term growth was consumer leverage. Despite the great 20-year real estate bull market, homeowner's equity as a percentage of debt is lower than it has ever been before (Federal Reserve 3/6/08). This will serve to exacerbate the current downturn as it takes time for consumers to correct their personal balance sheets; especially at a time when debt service and repayment as a percentage of income is probably at a cyclical high.
The leading indicator of price trends for higher end homes in the area traditionally was volatility in our capital markets, as executive level job growth in the area has been fairly steady. This may be changing.
The good news: the Bay Area is truly the gateway to the East, America's technology center and a cyclical phenomenon. Tech and biotech job growth is still robust as corporate capital expenditures on technology have been on the books for a while, and companies tend to invest in technology during downturns to make fewer employees more productive—a sister reason to natural beauty why Marin County Real Estate prices are less volatile than almost anywhere else in the country.
A short term concern for higher-end homes in Marin is trading floors and investment banking departments are being pulled back to New York due to consolidation in financial services and banking. This trend in finance jobs may continue for some time and will serve to diminish the pool of buyers able to afford Marin prices.
Why it is still a good time to be a buyer in Southern Marin
One of the issues that got homeowners into the pickle to begin with is the idea that one's primary home is an investment. On the contrary, homes are liabilities (big ones), until they are sold. At that point, the lucky homeowner whose home increased in value might say "this was a wonderful home, served us well, kids had access to great schools and healthy living, and as it turns out it was a decent investment as well." Going forward, hopefully, we will hear the same thing, only the ending may go like this: "and it was a safe place to put our money."
The point here is that buyers looking for primary homes in Southern Marin can take their time and find the right house, at the right time, at the right price. They are buying shelter for themselves and their families, not investments (although ironically, homes and real estate in Southern Marin are probably one of safest places, and least volatile places to invest your money for the next 10 years).
Why it is still a good time to be a seller in Southern Marin
We are still very close to the peak of the real estate market, both in the short term cycle as well as the longer term, post war trend. My concern is that as a function of affordability, home prices may not revisit these levels for some time. If you sold your home in 2005, you would have had more competition for it and may have sold it for 10% more. However, average home prices in all Southern Marin towns are higher than 2005. Bottom line, if you are planning to sell your home in the near term, or want the equity in your home to help finance your retirement years, you might want to get that ball rolling sooner rather than later, as consumer spending growth won't continue as it has in the post war period. Corporate profits will slow, followed by employment, and flat to declining home prices.
Download this document - Q3-Final.pdf