Sausalito Chamber WAVES, October 2006
An Overview of Marin's Real Estate Market
The Trend Continues Upward No Matter What the News

Dane and Sherrie Faber, First California Realty, Inc.

The medium is the message.  How many of you remember Marshall McLuhan?  Somewhat a revolutionary in media marketing at the time, he brought insight to the influence of the media (and how messages are delivered) on many topics and how opinions are formed.   The following news blurb is an example of “perception” versus literal content:  “U.S. home prices rose only moderately in the second quarter, registering their sharpest year-to-year slowdown in more than three decades,” a government report said.

The Office of Federal Housing Enterprise Oversight – the agency that oversees mortgage titans Fannie Mae and Freddie Mac – said average home prices rose 1.17% during the quarter from the previous quarter, far short of their 3.65% gain in the year-earlier period. The slowdown in price increases was the steepest since recordkeeping began in 1975.

I think McLuhan would have laughed when comparing the “sentiment” with the actual content.  Using a phrase like “sharpest year-to-year slowdown…” then following with “…average home prices rose 1.17% during the latest quarter…” is deceptive. My point is that prices actually have gone up, yet the impression imparted to most readers would be largely negative.  Now, depending on whether you are a prospective buyer or seller today, the aforementioned might be good news or not.

Many sellers may be concluding from the “media message” that a panic is upon us and any future plan to sell is accelerated to now.  If enough sellers believe the message, a panic could actually be precipitated.  Conversely, a buyer reading the earlier quote from the government agency might presume that this panic would result in significant discounts in prices when, in fact, average prices are still climbing (albeit more slowly).  

Home prices are somewhat cyclical, somewhat dependent upon other business conditions (economic growth, job creation and interest rates) and are dynamic.  The best news is that most home buyers live in their homes and decisions about selling aren’t always driven by price volatility. 

If prices decline, we may choose to stay in our homes longer and if the price decline is the result of rising interest rates or an employment downturn, eventually equilibrium will be reached and the cycle will move to an upward phase (as is indicated by the graph indicating decades of sales). 

This house, located at 694 Sausalito Blvd., was built in 1904 and raised four generations of the same family. It is on Sausalito's Historical Registry. In August, after only 21 days on the market, it sold for $3,050,000.

Even the variables involved tend to work to balance themselves – an employment downturn generally leads to a need for economic stimulation, which usually means lower interest rates and the cycle changes again.

The gap between buyers’ and sellers’ perceptions of market prices may never be as great as now and it is likely that that perception is a function of media influence and nothing more.  Previous generations of home owners never thought of their house as a “piggybank,” they didn’t speak of their home as they would another investment (stocks or bonds) and they probably didn’t talk about home prices at cocktail parties or at church. 

In fact, as a result of Depression era thinking, the biggest fear most home buyers had a generation ago was concern about price declines!  Ironically, the policy changes initiated by the Congress in reaction to the Great Depression helped to stabilize most markets (still evolving to an extent) but also contributed to general real estate price stability for a generation. 

The tremendous upward spike in home prices (especially in California) coming on the heels of a “bubble burst” in the stock markets (an unrelated phenomenon as people don’t live in their stock portfolios), coupled with comments like “irrational exuberance” from important market movers, has sparked the current thinking that we have a real estate bubble - and it may be that we do, only if we let it.  As McLuhan would say, perception is reality.

Marin Real Estate Sales for 2005
Single Family Homes
	Conventional Detached Dwellings			Condominiums/Townhouses
City	#Sales	Mean price	Median	#Sales	Mean price	Median
Belvedere	41	$2,903,150	$2,650,000	1	1,295,000	1,295,000
Corte Madera	112	1,098,122	999,500	32	626,517	622,500
Fairfax	80	790,635	750,000	15	534,467	535,000
Larkspur	117	1,350,521	1,279,000	55	581,804	560,000
Mill Valley	173	1,500,479	1,250,000	65	650,796	640,000
Novato	814	902,396	828,375	506	433,513	435,000
Ross	37	2,731,792	2,260,000	0
San Anselmo	182	972,533	852,500	10	575,550	542,500
San Rafael	476	1,006,259	885,000	358	536,835	506,750
Sausalito	75	1,412,747	1,250,000	68	696,330	604,000
Tiburon	113	2,277,330	2,050,000	55	1,014,777	860,000
Unincorporated	825	1,235,993	959,800	94	700,890	630,500
Total	3,045	$1,181,432	$945,000	1,259	$548,061	$515,000
Total Single Family Homes Sold: 4,304
Mean / Median Home Sale Price: $996,159 / $819,000
Mean Home Living Area: 1,913 sq. ft.

Chart from County of Marin Records

Commercial View
With America's housing market clearly cooling, will commercial real estate start to swoon?  It seems not.           

The national office market, which cratered after the tech bust in 2000, has recovered and is the strongest it has been in five years. The shopping-mall market has stayed strong because consumer spending held up better than expected. And hotels had their most profitable year ever in 2005, partly because of strong business travel.

Did you know . . . ° that you must obtain a business license if you are receiving income from a rental property in Sausalito? The cost is $100 for this license and can be obtained at City Hall. ° that if you have an in-law unit, the Planning Commission may grant you a variance to legalize it? Standards have been eased of late due to the shortfall of available rental units within town limits. ° when selling your property, you must obtain a Residential Building Report (currently paper driven only). Cost of this Report is $100 and is prepared by the City Planning Department from records maintained about your property. Any and all permits obtained will be cited in this report. ° that you should always visit the Planning Department when buying or selling a home and review the property file there. Great information can be obtained and it should help keep us transaction free of surprises! ° that there are currently 154 available residential listings in Sausalito (as of 9/6/06). Following are statistical averages of the Sausalito residential market: Listing$ SqFt Listing Price Per SqFt DOM Sale Selling Price Per SqFt $1,383,044 1833 $728 78 $1,286,427 $685

Despite the widely varying types of commercial properties – and the fact they are partly driven by different factors – it isn't uncommon for people to assume that if houses aren't selling, commercial markets must be at risk, too. So common that the faulty assumption itself could be self-fulfilling, says Robert White Jr., president of Real Capital Analytics, a New York-based real-estate information firm. "I so worry...that if they get burned on their condo in Miami, they are going to stay away from any other commercial real-estate investments for the next decade. Those markets are completely different."

Unlike the residential market, in which investors are most often private individuals, commercial investors are more diverse and not nearly as tied to mortgage rates.  Some of these investors include institutional buyers such as pension funds that pay cash instead of borrowing money.

There's also still strong demand for commercial real estate, particularly among foreign investors. "We just don't see any slowing of investor interest, particularly in retail and hotels," says Deborah Jackson, executive managing director of New York-based Weiser Realty Advisors LLC.

To be sure, the office recovery is uneven. Longtime struggling office markets such as Dallas, while improving, still have high vacancy rates from previous overbuilding, as do areas such as Cleveland and Detroit, where job growth has been limited.

Commercial real estate also remains a cyclical industry, and it is early in the office sector's recovery. Investors who paid sky-high prices for commercial buildings, especially those who financed using floating-rate debt or interest-only loans in the early years, are dependent on their optimistic growth projections to deliver.

Yet, with generally improving fundamentals such as reduced vacancy and higher rents and few worries about overbuilding in most markets, the office sector should continue to improve in the near term, if job growth doesn't take a dive. "We're still in that race between increasing interest rates and increasing fundamentals," Stephen Blank, senior resident fellow of finance with the Urban Land Institute, says of the commercial market. "It appears to me that we are going to skate through this."

107 Calendonia Street complex, which houses the fine Japanese restaurant Sushi Ran, sold in June of this year for $3,350,00. It is the ONLY commercial sale this year in Sausalito.

On the local level commercial rents have been rising and occupancy rates climbing.  Average commercial vacancies in the SF Bay area are nearing previous lows set in the late 90’s. Office rents in Marin are about $3.00 per sq ft per month for class A space and higher in parts of Sausalito with water views (what a surprise). 

Outlook locally is strong due to many of the same characteristics that influence the residential market - we have an exceptionally pleasant place to live and work.