Short Term Analysis

Marin County Short Term Outlook :
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.

In 2008, Marin County average residential home prices fell -12.7%. This correction in home prices gained speed in 2009--  during which Marin County average residential home prices fell -21%. In 2010 prices recovered 6.2%, but fell again in 2011 -5,2% and now hover around -30% below peak 2007 prices. Additionally, problem areas in all towns for homes that do not appeal to core buyer groups with urgency in the current market.

Spring 2012

The Spring 2012 market likely to be the best Spring selling market we have had in 3 years. The up-cycle started in most areas in Marin in late 2009, primarily in the lower market segments (bottom 2 price quartiles of each town).  This cycle continued in those segments through 2010 and expanded to the 3rd quartile in price and even briefly in the top quartile with some significant sales in several towns.  However, in 2011 we have experienced a double dip in prices:

The health of most real estate market originates in the lower market segments and slowly ripples up the price spectrum as liquidity in the lower market creates additional incremental demand in higher market segments.

We noticed a distinct surge in positive home buying sentiment in the first few months of 2011 triggered primarily by people simply wanting the recession to be over and reacting to each positive media announcement as proof that the “Great Recession” is FINALLY OVER!. Mortgage rates are at all-time lows and the combination of low rates and increasingly positive sentiment indicates that this Spring will likely going be a positive one for home sales.

However, events is the middle East and Japan stopped the recovery in its tracks, and the general surge in positive sentiment gave way to concern over the EU & national real estate statistics & headlines.

National real estate data continues to hobble along in the doldrums, especially new home sale data. Recent home “resale data” (not newly constructed homes) is also quite poor—led primarily by the glut of homes on the market combined with record setting foreclosures and a general the lack of buyers.

Locally, the trends are quite different.  Preferential neighborhoods in South and Central Marin have never had the overhanging inventory of homes on the market that other areas have had and thus our prices have been generally more stable. The best homes on the best lots in each area have sold right thru the recession at decent prices—especially view homes in Southern Marin.

Commercial real estate news in San Francisco is quite positive which usually precedes increased demand for Marin homes by about 9-12 months as it takes that long for offices spaced to be finished, and people to be hired. Eventually these folks need homes and some of them will end up in Marin County. This demand has already hit San Francisco in many neighborhoods—we just sold two homes at record setting $/sqft for that Cow Hollow neighborhood.

Longer Term Outlook:Home Prices are a derivative of Incomes and the local Job Market
There is some misunderstanding regarding how 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 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.

The first half of 2012 will likely see an improving real estate market in most areas of Marin, but it likely won’t be until 2015-2017 until demand picks up with Generation Y home buying.