Tuesday, July 04, 2006

Come to Marin, It's Not as Bad Here

As you can see in the above graphic, the Marin Market Heat Index is at or near an all time low. Never before has Marin real estate been so out of favor, at least according to this index. Even the realtor who publishes this index says the "reading hit 0.58 on June 26, the lowest reading since the Index began in 2002".

And it's still at 0.58.

Unfortunately, instead of discussing the likely down-side consequences for the Marin real estate market, instead of warning potential buyers about the near-term (1 - 5 years) future market conditions, the best this realtor can do is say 'well, at least it is not as bad here'. Denial, pure and simple:
Heat in the real estate market is a somewhat relative concept. Everyone agrees that the real estate market in general has cooled significantly in recent months. That has certainly been true for Marin where the Market HEAT Index reading hit 0.58 on June 26, the lowest reading since the Index began in 2002. Remember, 0.80—1.25 means a balanced market, so 0.58 is squarely in a Buyers Market area.

But since market heat is relative, we can take a look at a county near here to see what the HEAT Index is there. Would it surprise you to learn that on June 30 the HEAT Index rating for Sonoma County was 0.40 and that the Napa County index was even lower? This is significantly lower than the rating for Marin. Even in times of slower, cooler markets, real estate activities in Marin maintain at higher, healthier levels.
  • Marin County--0.62 [should be 0.58]
  • Napa County--0.38
  • Sonoma County--0.40
  • Solano County--0.38
  • Mendocino County--0.32
Furthermore, this realtor is hedging his statements by stating "Remember, 0.80—1.25 means a balanced market..." So what? We are a long way from a "balanced market". The scale is as follows:

According to this Index, Marin is in a solid and unprecedented "buyer's market". But frankly, IMO it's not a "buyer's market" until the excesses wrought by this housing bubble have completely blown away.

It is not in the least bit surprising that areas that are further from the nearest major employment center (i.e., San Francisco) are suffering more than those closer to the major employment center. Furthermore, Napa, Sonoma, and Mendocino counties are popular vacation/second house locations. I've said it before on this blog, as have many others, that vacation houses are the first to go and that the collapse of the bubble will work its way inward -- towards the employment centers. So far, the pattern of results are confirming that prediction (but faster than I would have thought).

10 Comments:

Blogger Marinite said...

Today the Index is at a new all time low -- 0.57

Jul 5, 2006, 1:54:00 PM  
Blogger buyer2be said...

I was touring around Sonoma county and although supply is high prices are simply not moving. I noticed several $1mil homes which were your average 3-4 bedroom, simple suburban single family homes with no special amenities, that we know are really maybe worth $650-$700k.

Owners are still, and for the last 6-9 months have been, in a haze over what their homes are really worth. I still saw an obvious flipper couple working hard on a fixer...

So the tide has not turned in Sonoma on most of these places, all be it they aren't selling many I am sure.

Jul 5, 2006, 2:38:00 PM  
Blogger Marinite said...

Prices are set at the margins by the people who have to sell.

The sellers who don't have to sell and/or don't get real will not be able to sell and will either have to wait a long time before they can get the price they think they deserve or else will chase the market down.

Jul 6, 2006, 1:00:00 PM  
Blogger marin_explorer said...

"we know are really maybe worth $650-$700k."

Or less. These same homes were likely $450-500K in 2002. Like Marinite said--long term owners and the desperate may set future prices.

Jul 6, 2006, 3:07:00 PM  
Blogger buyer2be said...

"Or less. These same homes were likely $450-500K in 2002."

I feel that; I was being conservative in the difference in current terms.

Jul 6, 2006, 4:59:00 PM  
Blogger mountainwatcher said...

Does anyone know why the news stations have been so slow to report this stuff?
They were so fast to report the price increases and stories of hopelessness for the average person.

Jul 7, 2006, 1:35:00 AM  
Blogger Marinite said...

Does anyone know why the news stations have been so slow to report this stuff?
They were so fast to report the price increases and stories of hopelessness for the average person.


Because most people stand to profit from fear on the way up than they do from fear on the way down?

Jul 7, 2006, 5:11:00 PM  
Blogger Marinite said...

The index is at 0.55 as of today, July 9, 2006. A new new all time low.

Jul 9, 2006, 12:21:00 PM  
Blogger Marinite said...

The new new new all-time Index low is today at 0.54.

Jul 10, 2006, 2:33:00 PM  
Blogger Marinite said...

It's now at 0.52. How low will it go?

Jul 17, 2006, 12:40:00 PM  

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