The stats are in for December so it’s time to look at the 2015 Marin housing market and how it compared to the years previous. The short answer is that the pattern continued: low inventory and rising prices. If anything, inventory levels were even lower than they had been, with last month having the fewest new listings and lowest months supply of inventory in years. In the chart below, the blue bars represent how many months it would take to sell the current supply of homes based on how quickly they are selling, and it’s down to less than a month for December, at the far right. That’s crazy low.
It was a combination of very few new listings and an uncommonly high amount of sales closing for what is typically a quieter month. In this chart you can see the dark green bar, representing closed sales, is higher than the Decembers previous, while the blue line, which is new listings, is lower than for any month across the three year span of the chart.
So basically, few new properties were coming on the market at the end of 2015 and buyers were snapping them up. We’ve been waiting for a few years now for the floodgates to open and for more new listings to come on the market in Marin and it just hasn’t happened, while demand has remained extremely strong. As long as those dynamics remain prices will continue to increase as buyers are forced to compete for homes. There are a number of things that could change this picture, including rising interest rates, a correction in the tech sector in SF, or the stock market and economy in general. With so many variables to watch it should be an interesting year ahead, and as always we’ll be here helping our clients navigate the complex Marin market.
If you have questions about what’s happening in Marin or would like market info tailored to your price range or area feel free to drop me a line at email@example.com.
In case you needed any more proof that the market in Mill Valley is super-heated due to tons of demand and limited inventory, here’s a great example. We knew 26 Shell Rd was going to get multiple offers and go well over asking, as it has an amazing lot and tons of potential. It’s on a big, sunny parcel, in the Alto Sutton Manor neighborhood that has become very hot the last few years, with good weather by MV standards, an awesome commute location, and the revamped Edna McGuire elementary school.
The original homes in the area are modest, but many have been expanded or even completely rebuilt, and prices have been shooting up. This one has a dated but pleasant 1454 square foot home, a second bonus building, a pool, and lots of flat usable space. Asking was $1,100,00, which was an aggressive price, but it got 10 offers and closed recently for $1,603,000.
Traditionally when you buy a house using a loan you get pre-approved by your banker or mortgage broker up front, based on some preliminary information about your financial profile, like credit scores, income and assets, and existing debt. Then once you get in contract on a home the lender underwrites the loan during the loan contingency period, typically a 10-17 day window after the offer is accepted. During that time the underwriter verifies employment and income, receives and reviews the appraisal, and gets other information and paperwork he needs so the bank can issue a firm approval. Once that approval is given then you can remove the contingency and proceed with the sale. But that waiting period puts you at a disadvantage when up against a cash buyer in a multiple offer situation.
In extremely competitive markets like Marin County and San Francisco we’re seeing a new trend. In an effort to compete with cash buyers some home purchasers are getting full credit approval in advance, where their mortgage banker actually sends their file through underwriting up front, so the loan contingency can be shorter or even in some cases waived altogether. With cash buyers often coming out on top in multiple offer situations it’s natural for those using financing to look for ways to be more competitive, so this may become more and more common as the hot market continues.
This more aggressive approach to financing brings up a couple of important questions. Is this method riskier than the traditional way of doing it, where a buyer has a contingency period during which she has an out if the financing doesn’t come together? And at some point will this become the new model for buyers getting loans? To this point this has been somewhat under the radar but the word is getting out, as the New York Times recently discussed the trend in a piece titled A New Weapon for Bidding Wars.
Also, even if you have no loan contingency, offers with financing are traditionally written with an appraisal contingency. If the property appraises for less than the purchase price the buyer can cancel the contract. Buyers have the option of waiving that contingency, but the bank will only lend based on the appraised value. So buyers who are at the limit of the loan to value ratio (for example 80% in a typical situation) have to bring more down payment money to make the loan happen. But some buyers who have enough money down, or the flexibility to increase their down payment if needed, are going in with no loan or appraisal contingencies, and thus being basically the same as an all cash offer. That’s a huge advantage and we hear from one mortgage banker we work with a lot that the majority of the deals he’s doing lately in San Francisco are structured this way, and it’s becoming more common in Marin as well.
It’s an interesting twist and the way things are going in this super competitive market it could become the new normal for many buyers. Considering you could forfeit your deposit if you make an offer with no contingencies and for some reason are unable to get financing, it’s not an approach to be taken lightly, and you need to be fully aware of all the risks before considering it. But if you’re writing offers in this crazy market it’s important to know that it’s happening, whether or not it’s an approach that would make sense for you.
It’s not really news that prices are high in the Bay Area, but check out this column in SFGate to compare what you need to make to buy a home here with the situation in other cities around the country. These income figures are based on the median price for a home in the metro areas as a whole and don’t take into account taxes, insurance, and other costs (or down payment), but are still useful in looking at relative affordability between cities. Maybe not a list you really want to be at the top of, but the demand for homes in Marin and other areas around SF is off the charts.
At least for now, they have just about completely dried up. We talked about this back in 2012 when they had slowed to a trickle, and that trend has continued. In December 2010 there were 31 new short sale listings in Marin, but last month that number was down to 4. There were a total of 10 active short sale listings, compared to the 234 on the market back in December 2010. Not that we should need distress sales to have any inventory in Marin, but this is certainly part of the story when looking for answers about this extended period of super low levels, as Janis Mara was doing in her recent IJ article.
In this chart the green bars show total short sale inventory, while new short sale listings coming on each month are represented by the blue line. It makes sense that they are going away as prices rise enough so that owners are no longer underwater on their mortgages.
There’s been a lot of talk lately about the effect of rising interest rates on the market, including this article from SFGate. While it’s not hard to imagine that 6% mortgages and the corresponding reduction in affordability would have an impact on the demand for Marin’s high priced homes, that would still be a relatively decent rate by historical standards. And we’re far from that at this point anyway–just was quoted 4.375% for a jumbo 30 year fixed today from our in house Wells Fargo affiliate. Of course that assumes a 780 FICO, but that is still a very low rate. Going to be an interesting fall!
The numbers for July are in and there are no big surprises. Housing inventory in Marin remained very low–almost unchanged from June–and there are still lots of homes being sold. We have been feeling anecdotally that things have felt less crazy as we’ve gotten into July and August, and though it is still very common for there to be multiple offers on desirable properties, the number of offers in competitive situations seems in many cases to be smaller than at the height a few months ago.
Of course, with the real estate market being pretty dependably cyclical, we would expect things to slow down a bit this time of year, as people take vacations and are focused on other things, and then we see a little bump in activity in the fall with the slowest time coming over the holidays.
Much of the inventory that’s not selling quickly is in the higher price ranges, so supply and demand are still very out of line for entry and mid level homes. The picture looks more encouraging for buyers over the last couple of months when you look at all price levels combined as in the chart above, but less so when you take higher end listings out of the stats. Here it is for properties under $1.5 million. Notice how the total number of available listings (the light green bar) was much closer to the number of homes closing in July (the dark green bar).
If you have questions about what’s happening in the Marin market or would like stats tailored to your segment or area, please don’t hesitate to drop me a line at firstname.lastname@example.org.
We’re back to blogging after a hiatus due to technical difficulties, and thought we should look at the stats for Marin. When we last posted there had been an uptick in new listings–more in one month than we’d seen in a couple of years–and we were interested in seeing if that was just a seasonal thing or a sign of a trend that might help the low inventory problem. So far it looks like it was just a good April for new listings, as that did not continue for May and June (the blue line in the chart below).
Months supply of inventory was up just slightly in June to 1.6, which is still incredibly low.
It’s been a while since we’ve looked at the stats, as we like to do here at Blog by the Bay, and as insane as the Marin market has been this year there might be a small bit of positive data for those hoping to buy a home in Marin. Anecdotally I can attest to just how completely crazy things have been, but at least there are more new listings coming on than we’ve seen in some time. Inventory is still extremely low and those homes are getting snapped up quickly, but at least more sellers are starting to bring homes on, as you can see by the blue line in the chart below which shows the number of new listings each month in Marin County over the last three years. And the blue line is higher than the red line, which shows the number of homes going into escrow.
This is not to say things are heading back to a balanced market by any stretch, but this trend is what we would need to continue for some time to make that happen. This is the time of year we normally see an uptick in new listings, but last month we had more than we’ve seen in years, which can only be good news. Unfortunately for buyers nothing has changed so far, and it’s been the most competitive atmosphere in memory, with multiple offers not just probable but expected in most cases. Here’s a look at the months supply in Marin overall, which as you can see is still hanging around the one month mark, and it’s under one month in the lower price ranges.
All-cash offers are pretty commonly the ones that win out in competitive situations these days, and buyers with loans often ask us why cash matters so much. They wonder why, if the seller is going to get their money at closing either way, would they consider the cash offer to be so much more appealing, and it’s a really valid question.
At the most basic level the reason is simple: sellers don’t like contingencies that mean they have to wait for weeks to see if the buyer might back out. If a buyer is cash, with no contingency for the loan and appraisal, then the seller knows the deal won’t fall apart due to financing issues no matter what the price is and how it relates to other recent sales. This means that in many cases cash buyers are setting the new comps.
Prices would not be going up as quickly if the winners in so many multiple offer situations weren’t cash buyers. Since they aren’t limited by an appraisal they are free to offer as high a price as they like. If someone were buying the home with an 80-20 loan and had limited funds for the down payment, they could only offer so much. And anyway, the seller would balk at an offer that was way over the recent comps as it might not appraise and the buyer could then back out. But the same high offer from a cash buyer is a sure thing since no bank or appraiser has to approve it. That’s the aspect of the equation a lot of people aren’t considering when they ask why cash and a loan aren’t the same.
This dynamic, with cash buyers being able to offer prices that are way above what the comps say the value is, means prices shoot up more quickly than if the market were ruled by people with 10 or 20% down. Homeowners who are watching this price appreciation and looking forward to bringing their homes on the market are certainly happy. But buyers who are trying to get into a home after saving up their 20% down payment are often feeling frustrated, losing out in multiple offer situations and seeing prices shoot up at the same time.
It can be tough to compete with aggressive, all-cash buyers but there are some strategies that can make an offer with financing more competitive. We are always happy to help buyers figure out the best strategy for their situation, so drop us a line if we can help!