As a primary home buyer in Marin Real Estate there are several trends in the marketplace that you should be aware of.

First: In most real estate markets most primary home buyers shop for homes based mainly on emotion—they tour the local neighborhoods until they find a home that ‘feels’ right; when they find this home a small emotional charge takes place and a creative / emotional process fires. Buyers will spend a long time returning to the same rooms, evaluating the flow of the house, and imagining / dreaming about living there—such dreaming may include raising a family in the house, retiring or launching a career from there. In this normal, healthy home buying process, home shoppers make their ultimate purchase decision based evenly on the emotional creative (~50%), and on price (~50%).

The past 3 years of primary home buyer behavior is a guide as to what NOT to do, in two extremes:

Extreme #1:  In 2007, buyers (and their agents representing them) overpaid fair value for homes in some cases by 20% or more. Buyers were scrambling to buy before home prices were out of reach despite numerous headlines and research readily available in the media showing that a bubble had formed and that home prices were poised for a correction. In 2007, home buyers were buying 80% emotion / creative / greed, and only 20% price / value / financial planning.

Extreme #2: Now fast forward 2 years to today. Home prices are 20% under fair value (a 33% swing from 2007 prices) in many parts of Marin. Interest rates are at all time lows. The issues facing our economy are not yet resolved: the capital markets are stabilizing, and the CDO ‘flu’ is abating, but future growth for the intermediate term will likely be slow due to the high levels of consumer debt. However, home prices are down significantly and interest rates are at an all time low—the combination of which is creating an historical affordability scenario for Marin real estate.

Yet, home buying activity is extremely slow. Home shoppers are out and about, but are hesitant to pull the trigger.  What we are seeing is in this extreme-- home buyers are shopping 80%+ prices / value / fear, and 20%- emotional / creative / fit.

Second: there are two types of pricing in the Marin real estate marketplace due mainly to different seller urgencies. On the one end you have sellers who are in a serious financial bind (many bought their homes in 2007) and need almost immediate resolution. On the other end of the spectrum you have more a normal type of seller motivation of people wanting to retire and/or downsize, move to Florida, closer to their kids etc.

Many home buyers see this different pricing and are confused often with negative reactions. What buyers NEED to understand is that they are buying homes at a discount to fair value; and the sellers with time on their side (i.e. no financial urgency to sell) realize this and are not going to let their babies go for a song. However, market comps for homes in Marin will continue at levels 20% below fair value probably for another 10 months or more.

As a home buyer you should be aware of these 2 market characteristics for several reasons—most importantly, trying to avoid the mistake of buying the wrong house for the right price. Good financial planning should be the root of all home buying decisions; however, buying a primary home in most cases is not the same kind of investment as allocating one’s 401(k) plan, or selecting a diversified portfolio of investments for long term gain. And in fact, buying a primary home mainly for future appreciation potential should be resisted at all costs—home buyers should buy homes that are good fit for the way they imagine their lives unfolding; homes in locations that will hold their inflation adjusted value for specific well reasoned logic ; and to make sure that the purchase price is reasonable given the current markets and fair value.

How do you determine fair value? Start first with the value of the land & location and then the value of the house. Most importantly, resist the temptation to analyze & value homes primarily by cost per square foot. Why? Real estate is all about location and it is almost impossible to properly explain the location premium in terms of cost per square foot for the home. Please see blog title "Home Valuation" .
In 2007 & 2008, 3 different sets of clients fired us for telling them not to buy a specific home at a high price. These 3 clients ending up buying the home anyway at the same price with a different agent; and are now likely very unhappy with their purchase decisions.  In working with us at The DuPont Group, you will receive three different valuations for each home you are contemplating. We will show you fair value and the discount to that which you might now find a home in Marin.

If you are contemplating purchasing in Marin in the near term—take the time NOW to find the right house; buy it,  and lock in a 30 year fixed mortgage; and start appreciating the benefits of living in Marin at an extraordinarily affordable cost.