We are consistently asked by our clients (sellers), "when will our markets return to normal?" We formed our definition of a normal Marin County market in our Q3 2008 Luxury Newsletter (call us for a copy) only to be followed by the October '08 stock market meltdown. A normal Mill Valley market over the past ten years has been an annual average of 377 single family homes sold (31 per month). For the past six months the total has been 78 (16 per month). The number of units sold is off roughly 50%.
Without closings we have limited comparables to make investment decisions. We are all looking for recent closings to benchmark property values. In the stock market we know CitiGroup Inc. will not soon return to its September 2008 value of $25 per share. In turn, we do not expect Mill Valley real estate to return to early - mid 2008 values. The question is what will the going forward adjustment be?
To address "the adjustment" we need to focus neighborhood-by-neighborhood and client-by-client. It is our feeling that Mill Valley, CA closings in December 2008 - April 2009 represent comparables based on sellers that had to sell, and quickly, or sellers that thought the market would fall faster in the Spring '09 and elected to set the comparables vs. having them used against them. In an attempt to quantify the "adjustment" we reviewed the new list prices vs. previous selling prices of six Mill Valley homes sold in late 2007 thru early 2008 and again currently active. The six properties ranged in price from $1.2 million to $3.3 million. On average the current list prices are 6% lower than their 2007 - 2008 closing prices. Four are over 10% below. The two homes over $3 million are 13% and 16% below their previous closing prices. None of the homes are in contract. Assuming these homes ultimately go into contract 10% below asking, we can extrapolate a downward shift in the Mill Valley market from late 2007 to today between 16% - 25%.
Current Mill Valley inventory (96 listings over $1 million) ranges in pricing from $1 million to $6.5 million and from $328 - $1,305 per square foot. Our review last week illustrated average price per square foot @ $595 for homes from $1 to $2.5 million, $779 from $2.5 to $3.5 million, $935 from $3.5 to $5 million and $1,155 over $5 million. It is very important to note that price per square foot is only one measure and does not take into account, location, noise,sun, condition of property, etc.
On the buyer side we are noticing a shift in the selection and valuation of homes. From 1998 - 2008 buyers place a high "prestige" value on certain Mill Valley neighborhoods and were very focused on "I want to live in Sycamore Park". Now we see buyers seeking "value". They are comparing like priced listings in multiple Marin communities and seeing what value they can get for their dollar. Essentially, a buyer shift in focus from "prestige" to "value". Sellers must be priced for perceived value.
Two other clear messages from buyers are:
1. A trend away from major remodels. This is likely a result of the changing credit markets and the loss of capital buyers experienced in the stock market meltdown.
2. A lack of willingness to write an offer on a property that is not priced in appropriate "strike zone". Buyers seem to wait for appropriate pricing before coming forward with an offer vs. writing a low, more competitive offer. The rationale seems to be, "what if I write an offer and the seller accepts it? We will clearly have paid too much". 3 - 5 counter offers are not unusual. Although buyers are more and more inclined to walk away if they don't get their price.
These dynamics are not easy to anticipate much less manage. We manage these issues every day. Only closings and comparables will add clarity and consistency.
Our advice to sellers:
- If you do not need to sell, this will not be the time in the market to maximize value. While we feel the "bottom is forming", we are not projecting high-single digit year-over-year appreciation until we see the number of Mill Valley homes closed exceed the ten year historical rate of 377+ per year.
- Be informed; tour the competition in your price range in Mill Valley and the rest of Southern and Central Marin.
- Be realistic about your asking price. Serious buyers are generally represented by talented, knowledgeable agents with access to all the same data summarized in this letter.
- If you are selling in Spring '09, time on the market is not your friend. The "perfect home" for the "right price" should trade in its first 30 days.
To discuss the above or analysis relating to your home, call Kyle Frazier, CRS (Marin Luxury Homes Specialist) at (415) 350-9440.
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