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Predictions for 2012 Marin Real Estate Market

Andy's real estate crystal ball predicts multiple offers, low and high end markets, distressed properties and more.

Contrary to popular belief I actually do possess a crystal ball and I consult with it on a regular basis when making real estate guesses, I mean prognostications.  Sometimes the ball is a little murky and even misleading, so please don’t shoot the messenger.  I'm serious, please don’t shoot me if I’m wrong.

Multiple offers are back! 

That’s right, if you are a seller in the Marin market in 2012 and you price your house well you can reasonably expect to see more than one offer, especially in the first quarter of 2012 when inventories are expected to remain low and demand high.

Bottoming out of entry level sectors throughout Marin

In the current real estate climate it’s hard to imagine prices getting much lower.  Already for entry level homes it makes more sense to purchase than rent, so buyers should not expect prices to fall further on entry level homes.  That would be like looking the gift horse in the mouth.  Turn your back on those sales, and the horse may kick you in the rear.  Anticipate intense competition for these homes.

Demand for ultra-high priced homes to pick up, slightly 

As of Dec. 30, 2011 there have been 154 single-family home sales over $2 million in Marin.  In 2010 there were 161.  Both years were better than the 127 sales in 2009, which was understandable after the mortgage meltdown of August 2008.  To put this into perspective, in 2008 there were 220 sales, and 2007 saw a whopping 283 sales.  I’m predicting between 170 and 190 single family home sales over $2 million in Marin.

More that 1800 listings won’t sell in 2012

This year 1,990 listings were cancelled, expired or temporarily taken off the market.  There is some overlap, as some homes were listed and didn’t sell more than once.  If you think 2011 was bad, 2,299 didn’t sell in 2010, and 2,183 didn’t sell in 2009.  In 2008 that number was only 962, and 2007 562.  These are a barometer of the health of our market, and 2012 should continue to see improvement.

Persistence of foreclosures and distressed sales

Sorry folks, but distressed properties have not gone away, and I expect them to continue to be an active segment of the market in the coming year.  The good news is that these sales will no longer necessarily weigh the market down as they have in the past because prices have already taken such a big hit.  It’s common to now see multiple offers on well-priced distressed properties.

This year, we’ve seen 759 distressed sales in Marin, which includes short sales, bank owned properties, VA repos, notices of default and properties in foreclosure.  In 2010 that number was 606 and 2009 it was 616.  2008 we had just 411.  In 2007, when this cycle began we had 31.  With 401 distressed properties currently on BARIES MLS we could easily see 700 or even 800 distressed sales in 2012.

Christine January 10, 2012 at 01:34 pm
We still have at least 2-3 years of foreclosures to deal with. The 2005, 06 & 07 bad loans are still yet to become due with many sellers scurring to sell as a short sale before it goes into foreclosure. The industry is still climbing up hill and the future economy and election will be a great indicator of where it all heads.
Andy Falk January 10, 2012 at 03:42 pm
Unfortunately you are correct, fortunately the distressed sales are not as dramatically effecting prices as much as earlier in the cycle.
John Ferguson January 10, 2012 at 06:02 pm
"Already for entry level homes it makes more sense to purchase than rent, so buyers should not expect prices to fall further on entry level homes." Do you have any actual data to back this up? I haven't run the numbers in the NYT handy-dandy rent ratio calculator in awhile but the last time I did the ratio for the part of Marin I live in was north of 22. Until it reliably drops below 15, I just don't think you can make that claim unless you see large numbers of renters with money burning a hole in their pockets.
Just for reference, here's the calculator link in case anyone wants to model their situation and assumptions: http://www.nytimes.com/interactive/business/buy-rent-calculator.html Your latter claim doesn't necessarily follow from the proof of the former either; just because it might be cheaper to buy within a reasonable time frame than to rent doesn't mean that there is a pool of qualified buyers who will suck up the 'low cost' housing that appears on the market. The flipside to low rates in this economy is much more stringent lending standards. I see very few ways for your predictions to come true and many ways for them not to. But, being in that business I guess you have to be hopeful that the worst is over for the sake of your clients.
John Ferguson January 10, 2012 at 06:15 pm
Ok, so I was curious. If you buy the assumption that a fairly standard 3/2 house in decent condition (15-25 years old, no major improvements) in the Ross Valley can be purchased for $600k and can be rented for ~$2500/Month, the rent ratio is still at 20. To achieve a sub 15 score, the house would need to be priced below $450k or rent would have to increase above $3350/Month. Neither seems plausible unless there's some sort of market correction. I'd say we still have a way to go in terms of entry level home affordability, although as customers we have been known to behave irrationally. When I put the relevant numbers into the NYT housing payoff calculator, it tells me that if I stay in my house for 23 years my choice to buy will eventually pay off. I'd love to believe that's a possibility but practically speaking I'd like more flexibility than that. I write my monthly rent check with absolutely no regrets..
Christine January 10, 2012 at 07:15 pm
Entry level homes are priced at their lowest. I think it's a great time to buy for first time buyers and investors especially for those with good credit scores. If you want to get your foot in the door, NOW is the time. If you are a upper end seller and don't have to sell then you are in still in a good position. Eventually the market will pick up - those sitting on the fence may regret not taking advantage of the historically low interest rates and reduced short sales and forclosure priced homes. A $417,000 loan at the current 3.99 interest (no points) for 30 yrs results in a $1966.86 payment not including taxes. Only you can determine if you should continue to rent or take the plunge and become a home owner. If you do, seek a realtor with MANY years experience...It makes great a difference!
. . .
John Ferguson January 10, 2012 at 08:15 pm
It's a fascinating opinion, but what is it based upon? If I understand supply and demand, then the prediction of a market bottom implies a belief in a steady supply of new buyers and/or a tapering of homes for sale, neither of which I'm yet seeing. Is this pure belief speaking or is there some quantitative basis you can point to?
Andy Falk January 10, 2012 at 08:56 pm
Hi John, you make some interesting points. I think time will tell if I'm right or not, that the entry level of the market has reached a bottom. I'll see what I can do to quantatively back it up tomorrow. I will say this, there are home buyers with money on the sidelines in Marin: stocks, trusts, bonuses, etc. There always have been. If you can put down 20% on a $500,000 house in San Rafael, which is totally reasonable, going by Christine's rate quote your monthly payment is less than $2,000. Add in property tax & insurance and you are at $2600/month, which is about what you would pay to rent a decent single family home. Add in the tax advantages and the fact that you're paying down the principal and it makes sense to buy. There is inventory in San Rafael under $500,000. You can buy condos that would rent for $1700/month in the low $200's.
Christine January 10, 2012 at 09:07 pm
Honestly, It's an educated guess based on past trends as well as watching how the market is reacting based on the lower interest rates and the now affordable entry level homes. Marin county real estate is still a good investment.
Andy Falk January 10, 2012 at 11:12 pm
I couldn't help but check before leaving the office. In 2010 in the 94903, from 10/1 - 12/31 there were 20 sales, average per square ft cost $343. In 2011 during the same period there were 18 sales averaging $338/sq ft, which is pretty darn close, showing some measure of statistical stability. In 2009 there were 24 sales averaging $402/sq ft. In 2007 it was a whooping $498/sq ft. I help people buy and sell every day, and I get the feeling these starter houses in the 94903 are in a more afforadable place for buyers right now and there seems to be enough demand to at least provide stability.
Mark Burnham January 10, 2012 at 11:49 pm
First, Andrew thank you for posting your thoughts. It is always nice to get a friendly dialogue started on a topic that affects many of us.
Curious is anyone puts any stock in the theory that values could again plummet across the board? How will the demise of Europe affect our economy and housing? Furthermore should the Fed fail to continue to artificially keep rates at ridiculous historic lows (1.9% 10yr) and they rise 3x to a still low 7% (which they were close to in 2000) what does that do to purchasing power and the prices of our real estate? I pose these questions as it seems a large percentage of our population are earning far less than they did a mere 5 years ago. It seems there are very serious threats on the horizon that could easily bring the housing market to its knees once again. No?
Magoo January 11, 2012 at 03:55 am
Buy a house because tht is where you want to live, not whether or not it is a good investment. That was my philisophy.
ivanwaddle January 11, 2012 at 07:09 am
When you're shopping quotes from lenders, beware of points that they'll try to impose on your refi. Each point is a fee of 1% on the amount you borrow. I worked with 123 Refinance search online for them. I would strongly recommend them since they got me 3.24% rate on my mortgage refinance.
Andy Falk January 11, 2012 at 10:26 am
Hi Mark, unfortunately you dredge up my darkest fears, something that very few people talk about. I think the big difference in the potential for a double dip recession based on macro economic factors like interest rates and the world economy is that if the economy takes another hit, it won't be the housing market dragging everything down this time, it will be the housing market getting dragged down. So it won't be as hard on housing. The condo I personally owned and sold at the very peak of the market in 2005 in Novato went for $435,000. Today you could buy it for $125,000. How much further can those entry level places go when they rent for $1,400/month? Not much because the cash flow on them is so attractive to all cash investors.
Citizen brings up an excellent point, which begs for the following tangent. Housing is a basic human need in Maslowe's heirarchy. A house should add to your quality of life: good school, desirable neighborhood, convenient location, security of owning vs. renting, etc. If you can afford to buy, and put your money toward a mortgage rather than rent, why would you wait? What is the opportunity cost of waiting? The priniciple you would be paying towards your mortgage and the benefits of ownership. I still think of homes as investment vehicles, not for refinancing, but for paying off one day and eventually selling in retirement.
Ian M Rogers January 11, 2012 at 01:54 pm
Hello John,
As a recent first time home buyer and a long time renter I think you are looking at this from a short sided time line. In the past 12 months rents in the Metro Bay Area have increased at an alarming rate, in some cases upwards of 14%. “San Francisco's typical effective rents shot up 14.6 percent during calendar 2011, with that big jump including a 0.6 percent increase seen specifically during 4th quarter. The annual rent growth pace registered in double-digit territory everywhere except Marin County, which has only a tiny base of apartments.” Source - MPF Research To think about the benefit of renting vs owning you need to consider where you expect rents to be in the next 5 years and even the next 10 years. I know that for me I am saving money in year one with home ownership vs renting, our rent was in the $2500 range per month for a 1x1. I can tell you that our current mortgage payment (on a 3x2) is significant less than this, when you factor in property tax and insurance I am at the same cost as renting but these are tax deductions so I am coming out ahead. We did as Andy talked about and purchased an entry level home, it’s not our dream house but it’s a good starter home. If we held out of our dream home we might be renting for the next 10 plus year saving up a down payment.
Magoo January 11, 2012 at 03:55 pm
There are tax laws regarding the deductibility of mortgage interest whether it is a principal residence, second home, or investment property. Many people who have been taking equity of their property especially where the loan exceeds the original cost plus improvements on the property are not in compliance with the tax laws if they are deducting all of the mortgage interest.
John Ferguson January 11, 2012 at 05:12 pm
If your comparison is renting in SF vs. owning in Marin, that's a very different conversation than the one we're currently having. Apples to oranges I would say. In a flat or declining market with stagnant wage growth I don't believe in the concept of 'starter home'. The concept I'm considering is buying (and holding) vs. renting in a single market - in my case, Fairfax. I don't really have any interest in living anywhere else at this point. My kids are in school and we're very happy here.
Rent increases certainly play into the equation. I haven't seen a significant rent increase outside COLA since I've lived in Marin, so it's pretty speculative that the rental market will suddenly heat up and rents would increase around where I live. If I could buy a house and pay a fully loaded cost (mortgage, tax, insurance and upkeep) that was under say 115% of my rental costs I would buy but it's not even within 140% by my calculations. The great thing about this is that I can always track the rent ratios in my area and if they drop below 16 I'll be looking to buy. Currently they're at 20, so we're not close. At my current rent payment, a comparable 3/2 home would have to be priced below $450k to meet my criteria. When you find a decent 3/2 house on flat land in the Ross Valley for under that, please let me know.
John Ferguson January 11, 2012 at 05:21 pm
I imagine that most people have the same thought as Andy does - that their home is an investment vehicle to be redeemed upon retirement. People have one chance to get maximum value for that investment, so they'll sit on a property that they would like to move in hopes that the value goes up. In a flat or declining market, any upward movement of prices will trigger a flood of listings, with the nicest most reasonably priced ones selling and the rest sit there until the owner decides she's not getting the offers she wants and she pulls the listing. Rinse and repeat. That cycle in an aging Marin will keep housing prices stable for years, if not decades. The boom is over folks and you can choose when to buy based on the cycles that will repeat for quite some time. That's what I'm seeing anyway.
As far as economic indicators, make sure you pay attention to what's going on in Iran right now. If the Iranians decide to lock up the straits of Hormuz for any length of time, oil prices will spike and we'll see an economic downturn regardless of what happens with European debt. There are so many potential triggers to a recession it's almost impossible to predict not having at least a 6 month downturn in the next 3 years.
Ian M Rogers January 13, 2012 at 02:55 am
Well the rental market is small Marin, I looked at the Cove apartments in Tiburon, I work in San Mateo and need to be in Southern Marin as the drive is killer. The 1x1 at the Cove was $2600 more than our rent in San Mateo; we were burning thru savings at the current rent levels in the Bay Area. We could pay our rent but were never getting ahead, with home ownership we are not rolling in cash but paying into our own financial wellbeing, heck only 29 more years to go and we own the place. The best part about owning is that I know my payment will be the same for the next 29 years. Also I live on a hill in Mill Valley and picked up one of the few single family homes under $485,000 last year. I love Mill Valley being a 5th generation Marin born, I love the area and the hiking we have at our back door. When my family homesteaded in West Marin before California was a state the county was a magical place, I still fell this magic is here and want to spend my life here.
Mark Burnham January 17, 2012 at 01:35 pm
andrew, good morning. i thought about you this am when i read this article. ANYONE considering buying real estate currently that believes we are at a price lows, near price lows, or that it makes sense to own vs the price of current rents should read this easy to read article that came out today on the cnn website. i'd rather not summarize but one of the leading wall street mortgage analysts is stating that unless banks and the government get real about the mortgage crisis and what they need to do .. the bloodshed will be far, far worse over the next few years. worth a quick read..
http://money.cnn.com/2012/01/13/pf/ows_goodman_best_money_moves.moneymag/index.htm?iid=HP_LN
John Ferguson January 17, 2012 at 11:25 pm
The real problem for the housing market here is not the large pool of bank owned housing (mostly in other places - real estate markets are incredibly local..) or default rates, it's the ability to find appropriate loans for qualified lenders. Not many houses are sold for cash. With the debt market taking a turn for the worse, a lot of commercial banks are grabbing money any way they can and hoarding it to cover their exposure in a market they can't easily sell out of (commercial and government debt). That means it doesn't really matter what the rates are, qualifying for a loan to finance that $800K house just got really difficult. So, less qualified buyers with pre-approved loans means what? Fewer offers, and a declining market with generally lower prices. We haven't seen the bottom of this housing market yet, not until the banks clean up their balance sheets.

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Ciel Niesen-Love June 15, 2013 at 07:41 pm
I, for one, am glad they're finally doing this. I have watched for years as Marin has ignored theRead More population growth that has affected us all. Not wanting to put in a commuter train, until the traffic lining the freeway is backed up into another county in the morning, is just one example of this. Then we have the fact that most of the children that my husband and I went to school with in Terra Linda have had to move to other counties because we can't find affordable housing in this one. To top it all off, it seems that the ones who have blocked us from making the smaller additions throughout the county have been people directly involved in the real estate industry, or just local home owners so worried about the value of their homes going down, that they fail to see the larger picture. So here we are, about to make a stride in alleviating the problem, and instead of rallying to make our communities better, we're trying to make it more difficult for the people who live and grew up here to still remain close to their families, not to mention the disabled adults and large elderly population in this county that are in need of this, as well. Some of the teacher's who work in this district have to commute in that traffic every morning, because they can't afford to live in this county, either. It's a sad commentary on where our priorities are when we can't support each other as a community.
John Parulis June 17, 2013 at 11:44 am
Ciel......we're talking big box freeway developments that will add tremendous traffic, schooling andRead More tax burdens to our community. Your ideas about population growth in Marin are off.
Ciel Niesen-Love June 17, 2013 at 02:49 pm
I know the population in Marin is 1% per year, but why do you think that is? People are livingRead More longer and our children are the healthiest in the country. I'll tell you why. It's because the children grow up and move out of the county, because it's not affordable. Here is an example of my latest thoughts on the matter: As the member of a Native American tribe, I have to say that I really resent being told where I should be able to live by an immigrant such as Richard Hall. I believe that roots are important and even if the growth rate has been 1%, it's only because most of the people who have grown up here can not afford to live here and move away. The elderly who make up a large percent of the population here are living longer due to medical advances and who do you suppose will take care of them? People such as myself and for not nearly enough money to live here. So what do you propose? You think that I should move to the East Bay or the North Bay and commute? Well, due to the lack of transportation support, that sound so lovely, let me tell you. Also, the children in Marin are the healthiest in the country according to a recent article I've read. Lower children death rates and such, so who is supposed to teach them and provide care for them and for not enough money to live here? Well, many teachers and care providers that I know that have to commute or live multiple roommates. You have successfully produced a community that only grows 1% per year. Congratulations. Through your grassroots efforts of blocking housing and transportation for years and claiming they don't live up to your standards, meanwhile not providing any pushes for what you might actually feel is smarter you have shut out your county's own children and hard working patriots. So, we can work for minimum wage taking care of your elderly, your children, your precious houses and cars, but God forbid, our children go to school with yours, or that you might actually have to bump into us at the supermarket and say "hi". This is the attitude which had prevailed here and I and many other people I talk to in my neighborhood and that I've grown up with are sick of it. Also, I'd like to point out that we all work hard, and the opportunity to work has been at the help of all of the people in our communities who have helped rear us. Teachers, nurses, doctors, firemen, policeman, babysitters, and many more. Just because some jobs like teaching or care giving don't provide with as much money, doesn't make them less important. In fact, my grandma used to tell me it "God's work". It takes a village to raise your children and it took a village to raise you all.