Selling a home in Carmel or Pebble Beach California can be challenging for a number of reasons, not least of which, this is a discretionary market:No one is ever forced to move here. There aren’t companies sending employees here or demanding that people live here to work for them. Many of the homes in our area are second homes.

How Most Home Buyers Approach Carmel and Pebble Beach

Proper pricing of a Carmel or Pebble Beach home is even more important because of the way most buyers enter the market. While it is dangerous to describe anyone as “typical” there are a few commonalities amongst the majority of buyers in our area.

• They have been here in the past on vacation, to visit a friend, attend a wedding etc.
• During their visit they started thinking about how great it would be to live here full time or own a second home.
• Maybe during that visit, or follow on visits, they picked up magazines, attended a few open houses and started to explore the different neighborhoods and communities.
• Eventually that process (which can take years) lead them to get more serious about looking for a home.
• And then on their next trip, they dedicated a day or two to work with a Realtor and tour homes with the intent of finding a home and making an offer.

This is where the seller’s pricing decision impacts the buyer.

• Very few buyers have the luxury to spend endless days looking at homes. They quickly (hopefully working with a Realtor…such as myself) reduce the list  to between five and ten homes to tour and consider.
• If a home is not correctly priced it won’t make the initial cut!
  • I cannot stress the importance of this fact. If a Realtor has a client in town for a day they will select properties where they expect there is a reasonable chance for a meeting of the minds between their buyer….and you.
  • If you are listed at well above market value and they have no way of knowing what offer you might entertain, what are the odds that they will spend their limited time showing your home to a prospective buyer?
  • Furthermore, even if a Realtor suggests an overpriced home many buyers will strike it from the list with the same logic as above. Why invest the energy in looking at a property that is priced well above what I am willing to pay for it?

There are lots of different ways to depict this reality graphically.

Half way up the pyramid is the “Market Value” line. As your price moves above this market value, you attract much smaller percentages of prospective buyers, greatly reducing the chance of a sale. Conversely, as you move below market value, you attract a larger percentage of potential buyers.

I realize this may sound theoretical but it is confirmed time and again in national pricing surveys and experience in our local market. My next post will look at a snapshot of sold homes in the last 60 days…..and you will see that there is a real world consequence of pricing in terms of days on market and ultimate sale price.

Last week Forbes published their “by zip code” analysis of the most expensive zip codes. As expected, the median price of homes for sale in most zip codes fell over the last year.

A year ago California accounted for 96% of the top zip codes, this year…less than 50%. Of the California zip codes still on the 500 most expensive zip codes, 83% had median prices that stayed the same or declined.

Pebble Beach

Pebble Beach experienced an 8% decline in median price from the previous year with a ranking of 42 on the most expensive zip codes list. While this number gives a general idea of the health of the Pebble Beach market digging a bit deeper offers more insights.

First, Pebble Beach is a relatively small market, with properties of drastically different size, location (views and proximity to golf courses etc,) and list prices, that the addition or removal of a couple of homes can skew statistics dramatically. Nevertheless, one can see the trends. The graph below compares the last 12 months with the previous 12 months.

Even more dramatic than the recent trends in pricing is the continuing increase in average days on the market for Pebble Beach homes.

If you break down the average days on market, not surprisingly, you see that the higher end homes are taking the longest to sell. The average days on market for the most expensive quartile (the top 25% of homes by price) is just under 300 days. The lowest quartile of Pebble Beach homes (the least expensive) is averaging 220 days on the market.

Percent with a Price Decrease

Pebble Beach, and markets like it, tend to have more sellers that are able to withdraw from the market and “wait for a better day” or hold more firmly to a list price than other markets where seller’s are running out of resources to hold on.  The graph below shows the percentage of homes on the market, at each point in time, that have experienced a price reduction from their initial list price. It is interesting to note that the lowest percentage of price reductions is among the highest priced homes.

Forbes observed in the article,

“Potential buyers increasingly fall into one of two categories: Those who have seen their net worths damaged by the financial crisis and those who realize they could probably get a better deal in a year’s time.”

I concur with their opinion. I also believe, as do they, that the lack of liquidity in the credit market for the high value mortgages that are often needed to buy these homes has had a huge impact. I have clients that are supremely qualified that have gone through loan processes that required hours of document collection and multiple appriasals and reviews. It is clear that lenders would much prefer to make 5 smaller loans than 1 large one.

We need credit to flow again to bridge the gap between ready and willing buyers and sellers.

My grandfather was a thoroughbred race horse trainer and obsessive trader. There were times he would head off to the track in a given truck and return later that night having traded it for an older model truck…and a colt. (As in horse, not beer or gun.)

Trading is back in style in the current real estate market. A colleague of mine recently completed a trade of a large lot for a house. Another client considered a trade for a home in Pebble Beach. I have clients who own two homes in Carmel and we have begun a search for a home in Carmel Valley or along the highway 68 corridor. Our intention is to approach selected sellers and offer the possibility of a trade.

While a trade transaction can be complex, it can often be rewarding for both parties. For example, someone downsizing a home might find someone interested in moving into a larger home. Or, as is the case with my clients, two households who are combining into one.

Often one of the parties will take the property they have received in trade, discount it, and offer it for sale. They may opt to do this if the property they are taking in trade is in higher demand, a better location, or has other qualities that will make it easier to sell then the original property they were offering.

Rarely are trades “apples for apples” and often one party or the other will have to bring cash into the transaction. I am sometimes asked if it is possible to insert a loan into a trade deal. The answer is yes, but it is important to work with a mortgage broker that can help explain the deal to the lender.

In this market don’t discount creative thinking. Seller financing, long escrows, and trades are all possible ways to move a property you need to sell or move into the property you would love to own.

By the way, if you happen to own a home in Carmel Valley, Pasadera or Monterra and have dreamed of owning a home in Carmel…..give me a call.

Admittedly many of the homes that sell in Carmel, Pebble Beach, Carmel Valley and over the hill in Monterey and Pacific Grove are priced such that most buyers need a “jumbo” or “non-conforming” loan. “Jumbo” loans are the loan product that has been most changed by the current credit crunch. The cost of these higher principal loans is much higher and the hurdles that have to be overcome to be approved can be extremely tight.

Lenders used to make these loans to a home buyer and a short time later sell them to investors on the secondary market. The collapse in demand for these loans (turned into securities) has made lenders much less enthusiastic about lending.

“Conforming loans” on the other hand conform to government guidelines (set by the Office of Federal Housing Enterprise Oversight (OFHEO)) and can therefore be purchased by Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises that are charged with facilitating the flow of credit.  Fannie and Freddie are continuously in the market for conforming loans. 

The Relevance To The Monterey Peninsula?

In 2008 the loan limits were raised to $729,750 for Monterey County. This allowed buyers to use conforming (less costly) loans to purchase higher priced homes. In January the loan limit for Monterey County reset to $483,000 while “high priced counties” reset to $625,500. Monterey was lower because of the high number of transactions in the Salinas Valley that pulled the median sale price for the year down.

Any increase in the conforming loan limits will be welcome news to buyers looking at $500,000 or more listings.

The First-Time Buyer Credit

 The bill also moves the first-time buyer credit up to $8,000 (from $7,500) and more importantly removes the requirement that it be paid back as long as the buyer stays in the home for at least three years. The credit is available for first time home buyers that purchase a home before the end of 2009.

The AT&T Golf Tournament mostly escaped rain on Friday and Saturday with 24 year old Dustin Johnson taking the lead. Every year as the tournament approaches I am asked by potential sellers what impact the event has on efforts to sell a home in Pebble Beach, Carmel, or the other peninsula communities.

The AT&T golf tournament and other events such as the Concours d’Elegance in August are very important because they bring people to town and remind those who watch the events on TV or read about them in the media that the Monterey Peninsula is a special place.

While a few homes will go into escrow during this weekend, the reality is that most attendees who are here for the tournament are far more interested in the golf, restaurants, and other activities than they are in looking at homes for sale. What happens most often is visitors for an event such as the Pro-am have a great few days here and decide to visit again in a few weeks or months on a follow up visit. It is on their return trip that they are more likely to learn a bit more about the different communities and explore the possibility of buying a home here.

This year the tournament fell on the same weekend as Valentine’s Day which is unfortunate for local commerce and for real estate as well. A Valentine’s weekend that doesn’t have any other major event will bring folks to town who are interested in walking on the beach, a romantic dinner, and exploring Carmel’s art galleries, Pacific Grove’s coastline, playing golf at Pebble Beach, and…..visiting a few open houses.

With any luck, next year we can all take long romantic walks through town-without rain-on Valentine’s Day, and enjoy the AT&T tournament on an equally sunny but different weekend.

 The Pebble Beach housing market has softened somewhat, more so at the highest price point.  The Carmel housing market is holding its own with a bit of strengthening at the upper end. First, a look at our markets, then some national numbers. 

 To more accurately describe the real estate sub-markets, I report the median price in Carmel and Pebble Beach in quartiles. The most expensive 25% of homes make up the first quartile, the next 25% the third quartile, the next 25% the third, and the least expensive 25% are the fourth quartile. 

The data supports my feeling that home buyers are opting to move towards the “golden rectangle” and higher value locations as the market has softened.

Buyers with money, and liquidity, remain active in the upper end. Having said that, buyers are in “deal mode” recognizing that they have the upper hand in this market.

     Pebble Beach remains relatively flat. It is important to remember that there are not that many homes at the high end so the sale of a single home, or the addition of one especially high priced listing can skew the numbers.

In the case of both Carmel and Pebble Beach, traditionally many sellers “don’t have to sell.” These sellers will often try the market for 6 months to a year and then withdraw to wait for a better opportunity.

As the economy remains weak, some of these sellers are going to find that their ability/desire to continue to hold weakening. 

That fact is reflected in the numbers. Half of the homes currently listed have undergone a price reduction.

Nationwide Luxury Home Market Trends

Luxury home asking prices have fallen just over 5% so far in 2008. Average days on market, in high end markets, has stretched from 125 to 148 days. The “high end” is defined as the top 10 wealthiest zipcodes in 30 large metro areas across the country.

Nationwide agents are seeing the same growing concern amongst high end clients about the length and depth of the current financial crisis.

The collapse of Lehman Brothers and the credit freeze on September 15th signaled a change in attitude across the top end.  

Short sales and even foreclosures are occuring at these higher prices, a  rare occurance only a 18 months ago.

Insights

Price is becoming ever more important. Buyers are deal hunting and negotiating hard. Succesful sellers are pricing with that in mind.

The houses that are selling, are selling for prices set for today’s market-not the market of last year, last summer or even last month. That being said, there is still a market out there-people are still buying and selling homes. And there are a lot of investers looking for good investor opportuntities.

If you would like to discuss a specific neighborhood, or house, give me a call on my cell phone at 831-601-4740 or send an email to malone@malonehodges.com

Better Here Than Elsewhere, But….

Nearly all of our markets are discretionary. People choose to live here.

When they come to the Peninsula,  buyers are often acting on their dream of owning a second, or even a third home.   Most of our buyers are sophisticated and successful and pay attention to appreciation potential and the cost of money. They track the market and pay attention to statistics.

Given the lack of urgency, many buyers are holding back in hopes of catching the bottom of the market.   Others are identifying the home they want, and using their power as strong buyers to negotiate exceptional deals.

Successful sellers are pricing their homes based on today’s comparables not those of 18 months ago. They are staging their homes and paying attention to the details of how a home shows.  A home has to look and feel great through photos, brochures, and in person.

It is extremely important that the home is well positioned on the internet and that the brokerage community is educated on its value.

Within the last couple of weeks I put these two properties in escrow, representing the seller. In both cases we made a concerted effort to prepare the homes for the market and create a sense, which was correct, that they wouldn’t last long.

Ocean view home in Carmel

Ocean View Carmel Home

Teapot Cottage Carmel

Carmel Cottage for Sale

I strongly advise buyers to submit a detailed approval letter from a lender and proof that they have the downpayment with their initial offer. Make the case that you are qualified and able to close escrow. It will strengthen your hand considerably.   My clients and I recently prevailed in several multiple offer situations because we presented clean, well supported offers.

If you would like to discuss strategy, or the market, give me a call on my cell phone at 831-601-4740 or send me an email at malone@malonehodges.com.