There's No Place Like Home

As Dorothy said so famously to Toto after her farmhouse crash-landed in Oz, “I have a feeling we’re not in Kansas anymore.” Dorothy might say the same about the shape of today’s real estate market after the big crash of 2008—except we don’t have ruby slippers to click together to take us back to the good old days of substantial annual increases in home values we enjoyed in Marin.

Forget sparkly footwear; we need some heart, plenty of courage and a brain to get us through the current environment for local real estate. Let’s face it, the world around us has changed dramatically, especially in the last three months, and that’s taken its toll on real estate values.

Although year-over-year home (both single-family homes and condos) values have declined in Marin by an average of 8 percent, more than a third of that drop occurred in the last 30 days of 2008. By comparison, home values in the greater Bay Area fell an average of 12 percent in the same time. The one bright spot in the Marin numbers was Sausalito, where the median home value rose 2.7 percent year over year. As of December, only 22 percent of Marin listings were in escrow, and only 128 of 768 homes for sale had closed (16.6 percent)­—and of those 42 were distressed or short sales. When the number of active listings in escrow falls below 25 percent, it indicates a strong buyer’s market. By comparison, only 13 sales in December 2007 were distressed or short sales. This is another indicator of an environment where buyers are in a strong position to negotiate.

Unfortunately, Marin is exposed to the same pressures as the rest of the country—the world credit crisis, liquidity crunch and global economic downturn. But let’s keep things in perspective—the overall real estate market has performed much worse than Marin County’s. While home values have declined at unprecedented rates nationally, Marin cannot be compared to, say, the outright collapse of the condo market in Miami, and the declines in local value are a fraction of those in markets without the positive characteristics of Marin.

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, believes the recession is likely to be milder in the Bay Area because the region has a much better industry mix than other markets. The dynamics that generated our local real estate values in the past remain in place, but expectations on present and future values should be adjusted to reasonable levels.

One stumbling block to recovery is the perceptions people have of the present and future value of their homes. A recent survey asked western homeowners if they thought their homes would increase, stay the same or decrease in value. Only 65 percent foresaw a decline in value and 35 percent expected an increase. In fact, over 85 percent of those homes dropped in value a year later.

 Locally, Marin homes in November were on the market for an average of 88 days and sold on average 8.3 percent below the asking price. Janet Williamson, a Frank Howard Allen agent who specializes in Belvedere and Tiburon properties, suggests sellers should price at or under the market for comparable houses.

“Properties priced correctly are selling, and that includes higher-end properties such a $19 million property that sold in Belvedere at the beginning of the year,” she says. “Either way you look at it, it’s a buyer’s market, since those with access to financing are in a strong position to negotiate. Sellers aren’t getting multiple offers these days and it’s difficult for them to accept that their most valuable asset isn’t worth what it used to be.”

The irrational exuberance is gone and expectations need to be reset on both sides of the sale. Buyers no longer need to bid up the price and sellers should be in the “here and now” about their asking prices, not the way it was six months ago.

The bright side is that you can actually find bargains in Marin these days, especially in places like Novato and San Rafael. Unfortunately, the decline in home values has created a significant amount of negative equity in Marin homes purchased during the last five years.

Still, the froth has been skimmed off the market, and 30-year mortgage rates are averaging 5 percent—down from 6 percent a year ago. If you’re a long-term investor in real estate, the current Marin market holds value. This is still a market supported by a significant metropolitan economy, considerable disposable income, a quality education system and a lack of housing supply due to geographic constraints. In other words, there’s no place like home and with a limited amount of land available in Marin, they sure aren’t making any more of it.

Ian Charles, Cofounder and CFO of Rex & Co., has spent over 15 years in real estate finance modeling and equity research; and earned an MBA in finance from USF.