The Fed and Our Market

The Fed’s move to lower the federal funds rate by 50 basis points, while expected, was well received. Bernanke (The Federal Reserve Chairman) said the Fed “…took that action to try and get ahead of the situation.”

Congress may raise the conforming loan limit for Fannie Mae and Freddie Mac. They are currently prohibited from buying loans greater than $417,000. Larger “jumbo” loans are sold in the secondary market where the turmoil from the “sub-prime” crisis has caused a great deal of problems. The thought is that allowing Fannie Mae and Freddie Mac to buy higher priced loans from lenders will calm the waters and provide liquidity.

Bernanke isn’t enthusiastic about the proposal and Treasury Secretary Paulson supports the idea only if it is temporary and if there are regulatory changes as well.

How Does the Mortgage crisis and faltering markets elsewhere affect Pebble Beach and Carmel?

Our market is impacted in the following ways:

• Most buyers coming to Pebble Beach and Carmel are “buying up.” They have sold a primary residence, or second home elsewhere, and are excited about achieving the dream of a home in Pebble Beach. For the prospective Pebble Beach buyer to “buy up”, someone else down the ladder needs to “buy up” to their current home. So, a faltering market in Fresno makes it difficult for that Fresno owner to sell and move here.
• Many buyers in our area took advantage of “no-doc” loans. Most were well qualified buyers that might have had “lumpy” income streams such as fluctuating income from owning their own business. The rules have tightened and most “no-doc” loan programs are gone.
• Buyers calculate the cost of owning a home including rising interest rates and taxes (which have climbed along with home prices.) A few years ago, they might have included substantial appreciation in their calculation. While appreciation over the long term is still attractive, it will be far less than in past years.

Pebble Beach Market Action Index (Sept 2007)

Home prices are a function of supply and demand, and market conditions can be characterized by analyzing those factors. the Market Action Index is a tool for measuring the balance between supply and demand using a statistical function of the current rate of sale versus current inventory. It takes into account the number of homes on the market, how fast they are being sold, as well as price drops.

If the Market Action Index falls below 30 and remains there, prices are likely in for a downward correction.

If the Index is above 30 it typically indicates a “Seller’s Market” because demand is high enough to quickly absorb available supply. And, prices will usually rise as a result.

How is the Market?

Across the Monterey Peninsula, the market can be tough on sellers at the moment.

There are buyers, but there is no sense of urgency to act. In times past, if a buyer found a house they liked they moved quickly to make an offer for fear it wouldn’t be available when they were next in town/fully ready to buy/or had sold their other home. A property for sale today will most likely be available days or weeks from now.

Most buyers are wise not to rush; to take the time to understand the pros and cons of a property. Many elect to wait in hopes that a more desirable property or better priced alternative will present itself. The exception is when there is excitement about a property and its price, both of which we are able to create on our 1265 Lisbon Lane, Pebble Beach property.

Pebble Beach Quartiles (Sept 2007)

Quartiles

In markets like ours there can be variability between the upper and lower end of the market. For example, the first quartile, the most expensive properties in Pebble Beach, saw a dip in median price earlier this year but has moved upward over the last few months. Meanwhile the second, third, and fourth quartiles have remained relatively flat.

A word of caution, there are only a few properties for sale in each quartile so a sale of one or two can skew the data.

Market Profile, Pebble Beach (Sept 2007)

The median single family home price in Pebble Beach this week is $2,695,000.

There are over 110 homes on the Pebble Beach market. The average “days on market” is 195 days. Of the 110 homes, 20 percent (22) have been on the market for more than nine months with 13 of those on the market for more than a year.

Thirty percent of the homes on the market have undergone a price decrease from their original list price.

This is a telling statistic.

I believe that it is far better to price a home well from the start than run the risk of chasing the market. Sometimes price decreases are necessary, but for them to have an effect they have to be substantial.

Carmel Valley 15 Sept 2007 Summary

Carmel Valley Median Prices 15 Sept 2007

Median Prices in Carmel Valley have indeed fallen over the last few months. This is partly a function of decreases in list price of properties currently on the market and from sellers recognizing that the market has changed and adjusting their initial asking price accordingly.

47% of the properties currently on the market in Carmel Valley have undergone a price decrease since coming on the market.