Much of the nation had its eyes on Pebble Beach this past week with the 2012 AT&T National Pro-Am. With the conclusion of the tournament I always get a lot of questions about how this attention affects our real estate market. Yes, we have a number of people dining at our restaurants and staying in our hotels, but they are here for the golf. What tends to happen is a few months later we’ll get the lasting memories of that trip to Carmel and Pebble Beach and then the interest in real estate. This tends to feed right into our selling season which begins about May and lasts through our sunniest months of September and October. You may be curious how are market has performed so far this year. If so, below is a snapshot of the markets I focus on and where I think we’re headed.

Recent Sale on Monte Verde & 7th

Carmel-by-the-Sea: Carmel has been our leading market. This is a market made up of predominantly vacation home buyers looking to be within walking distance to town and the Carmel Beach. Most buyers in this market believe we have seen the bottom and prices are edging up slightly. Properties are selling within 6 months on average, but there were two homes that sold in January within a week due to their aggressive list price. The average sales price in Carmel-by-the-Sea is  currently $1,456,766 with an average price per square foot of $777. Of course the closer you get to town and the beach, those price points increase. We did experience our highest price sale in Carmel since 2008 earlier this month. Scenic 4 SE of 8th sold for $8.1M, down from its original list price of $15M 588 days earlier! I believe this market will continue to improve and lead our recovery. One such reason is Silicon Valley’s economy is strong and we tend to see those buyers enter our markets for vacation homes.

Pebble Beach: Pebble Beach’s prices didn’t drop as quickly as the rest of the market when the down turn originally hit, but they aren’t recovering as quickly either. Our marketing periods in Pebble Beach are an average of 3 months longer than they were a year ago and the majority of activity has been focused in the $2M and under range. The average sales price currently in Pebble Beach is $2,414,272 down from $3,343,454 for January of 2011. We do have 21 pending properties in Pebble currently - the majority of which are slated to close in March. The sales average for these properties is $1,525,276. Granted high-end sales are happening (we had 3 sales between $3-7M in January) but the activity seems to be focused on $2M and under. The market here will remain value driven but I do expect to see select luxury properties closing in the premier locations of Pebble Beach.

Recent Sale at 288 El Caminito, Carmel Valley

Carmel Valley: Carmel Valley is mostly flat with the average sales price up 4% from the same time last year with the market centering around the $1M mark. Activity has picked up in the sense that marketing periods are about 2 months shorter than they were a year ago. The average sales price in the Valley is currently $790,727 with 8 out of the 11 sales in 2012 under $1M. The highest price sale in the Valley has been $1.505M for an aggressively priced home in Sleepy Hollow – this was actually slightly above the list price. There seems to be a whole pool of buyers waiting patiently on the sidelines for inventory to increase in the Valley. These buyers are value driven, and when the right home comes on, I believe they will act quickly.

This just in! Congress has moved to restore the loan limits we enjoyed prior to October 1st. Loan limits fell to $483K in Monterey County on October 1st from $729,750. Monterey County was one of the hardest hit counties in the country as our county combines diverse regions such as Pebble Beach and Salinas. Other areas, like San Francisco, saw their loan limits fall to $625,500. Fortunately, last night lawmarkers voted to restore this higher loan limit of $729,750 for the next two years. Buyers and sellers in our county were particularly concerned about how the lower loan limits would affect our market. Buyers were expected to see higher loan costs, increased down payment requirements and higher credit score requirements. Surprisingly, however, I noticed buyers were still borrowing well above the $483K mark at interest rates in the low 4%. Lenders were able to bridge the gap with jumbo loans and conforming loans of $483,000 with purchase money second loans. Granted, a strong credit score and at least 20% down are standard protocal these days, I didn’t see a dramatic shift in activity simply because of the change. Regardless, this is yet more good news for buyers in today’s real estate environment.

Sold in 4 days in Carmel!

If you read the paper or watch the news it’s no doubt you’ve heard that the real estate market is not getting any better, and may even be getting worse – from a national perspective. Growth is flat at best, we have real structural issues to our economy that can’t be fixed overnight and we’ll probably have another 5-7 years of slow growth. But I’d like to make the case that Northern California is the anomaly. Real Estate is more affordable now than it has been in the last decade! Interest rates are expected to remain low through 2013, although underwriting requirements are challenging. Real Estate should be viewed as an investment. Compare it to CDs at near 1%, a 10-year T Bill which can’t beat inflation, the stock market’s volatility and real estate stands out as the best choice. In 2000-2006 the Bay Area experienced crazy appreciation that was not sustainable. The bubble burst and now after a real correction, we have true values that over the next 5-10 years should see mild annual appreciation. The value in real estate is in the land, and that is a limited resource, especially on the Monterey Peninsula.

Luckily for us, Silicon Valley is in the midst of another “revolution:” think smart phones & apps, Facebook, Twitter, Google, Apple. 50% of every job that was hired in the US was in Silicon Valley. Companies can’t hire fast enough and are attracting talent by increasing salaries and have plans on going public. This “revolution” is expected to continue for the next 5-6 years. Silicon Valley’s success can be seen in Carmel-by-the-Sea where the market is strongest and demand for second homes is highest. The demand here has been largely focused on the Golden Rectangle and Carmel Point neighborhoods where we’ve had 53 sales so far this year with an average price per square foot of $1,078, which remains relatively unchanged from last year’s numbers. Sales for these two neighborhoods ranged in price from $835K to $5.7M for a turn-key Carmel cottage on Scenic Avenue. I expect the demand seen in Carmel-by-the-Sea to slowly trickle through our outlaying neighborhoods. The Pebble Beach market has is slightly slower than last year. We had 71 sales in 2010 with 22 sales over the $2M mark. So far this year, we have had decent sales activity with 61 sold and 2 months to go, albeit slower months. 18 of these sales have been over the $2M mark. In Carmel Valley good quality inventory is hard to find. We’ve had 98 sales since the beginning of the year, with 25 sales over the $1M mark with 15 of these sales occuring in the later part of this year. Activity picked up in the second half of the year in the Valley, maybe as a reaction to the foggy summer we had in town!

I expect the high end market, especially between $2-5M, to be the healthiest in the coming years, while the middle tier market ($1-2M) will take longer to rebound. People in the middle tier are having difficulty selling their own home in order to move up or downsize. They are having a harder time qualifying for loans. Neighborhoods in the middle tier typically make up about 80% owner occupied and 20% tenant occupied. This could be more like 20% owner occupied and 80% tenant occupied in the near future as more families opt to rent.

Today’s real estate market represents a great opportunity. Some buyers wonder if they should wait to buy. My response, buy today and wait. Our pricing has corrected, interest rates are at a 60 year LOW and inventory is high. This environment will not last forever.

Beginning January 1, 2013, a new 3.8% tax on some investment income will go into effect. This new tax was passed by Congress in 2010 as part of President Obama’s health care bill. The tax has been dubbed the “Medicare tax” because the proceeds (expected to be $210 Billion) are to be used to cover the Medicare Trust fund which is expected to run dry in a few years. There are many misconceptions about this new tax, and it is complicated, but here is some simplified data to help you understand the tax, and its implications.

• This tax will NOT be imposed on ALL real estate transactions.
• The 3.8% tax may be imposed on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses).
• The tax will apply only to individuals with an adjusted gross income of $200K and $250K for couples filing jointly.

Examples where this tax may apply are:

• Those selling their principal residence with a realized capital gain.
• Those selling stocks or bonds also with a realized a capital gain.
• Those receiving substantial income from securities investments.
• Those who receive rental income from commercial or residential properties.

There is also a second, lesser known tax that is dedicated to Medicare funding that will be imposed on the “earned” income of higher income individuals. This alternative tax will be .9% and  is based on the adjusted gross income of individuals over $200K or $250K for joint returns. This tax will be imposed on a portion of the money one earns from one’s labor, i.e. salary, wages, commission, etc.

The best way to determine if these new taxes would apply to you is to consult your tax accountant. You can also visit Realtor.org to view frequently asked questions pertaining to this law. Or please contact me for a PDF of examples on how this tax applies and is calculated.

It is important for all active buyers and sellers to be aware of the approaching loan limit change as of October 1st. Currently, buyers can borrow up to $729,500 in Monterey County at conforming loan rates, which is called the High Balance Conforming Loan. This loan amount is decreasing in Monterey County to $483,000 on October 1st. Different counties have different loan limits, but because Monterey County not only includes higher priced areas such as Carmel and Pebble Beach, but areas in Salinas that have been greatly affected by distressed properties, our conforming loan limits are dropping to one of the lowest levels at $483K. Essentially, the cost of a jumbo loan, anything over $483,000, is going up. And some buyers who qualify for today’s High Balance Conforming Loan won’t qualify for what will be a Jumbo loan in a few short months.

Not only should buyers act quickly to lock in rates at our current historic lows, but sellers should be motivated to price their homes well and sell before this deadline. I’m sure new products will bridge the gap eventually, but it is safe to say that loans will become more expensive for borrowers and the buyer pool may decrease in the short term. It is also important to remember that although the cost of borrowing is increasing, we are still a far cry away from the once double digit rates we saw in the ’80s.

Click here for a complete list of loan limits per county in California.

The past 6-8 weeks has witnessed a drop in buyer activity here on the Monterey Peninsula. For the most part, we believe that prices have bottomed in our market, although our recovery has been stop-and go. And the word “recovery” is really not the right word to use, as projections show prices to remain flat this year, and well into 2013 and  possibly 2014.  For those deciding whether to sell now or hold on for a few years, I would consider your carrying costs as your home will most likely be worth the same today as it will in 1-3 years. Not an uplifting picture from a seller’s perspective I know. From a buyer’s perspective, however, now is the time. I would act now, before our conforming loan limits are set to change in the fall. Click here to read my previous post on the changing loan limits, but essentially as it is today, you can borrow up to $729,500 at a conforming rate and come this fall you will only be able to borrow up to $483,000 or $625,500 at that rate, anything in excess will cost you more.

Below is a quick snapshot of our market. The data below is compiled from active, pending and sold properties between January 1, 2011 and June 25^th.

 Pebble Beach

Active listings: 114

Pending: 12

Sold: 27

Average Days on Market: 138

Average Price per Square Feet: $704.16

Average Sales Price: $2,462,304

Carmel

Active listings: 179

Pending: 30

Sold: 82

Average Days on Market: 123

Average Price per Square Feet: $1,172.18

Average Sales Price: $2,181,238

Carmel Valley

Active Listings: 121

Pending: 31

Sold: 42

Average Days on Market: 154

Average Price per Square Feet: $442.09

Average Sale Price: $1,430,104

 Yes, Carmel is a fabulous place to retire, but this quiet ol’ town has a surprising number of young families. Here is some information to help you navigate our public school system.

Carmel & Carmel Valley

Carmel has been known for some time as having an excellent public school system. Carmel is broken into three elementary school districts: River school, Tularcitos and Captain Cooper.

1. I have many buyers who look only in Carmel for a home because of the school district. Enrollment for River school was at historic highs and the school was at risk of losing state funding due to increased class sizes. Therefore, they reduced their district size and revised its boundry lines as of June 4th.  Carmel River school now only extends to the entrance of Carmel Middle School on Carmel Valley Road. Anything further east, is now within the Tularcitos district. There are also a few areas of Carmel that fall in the Monterey school district including areas of Jacks Peak and High Meadows. Be sure to confirm your school district if you are looking for property in these neighborhoods.

2. The Tularcitos district begins at the Carmel Middle School entrance and runs East. Tularcitos is also a very well regarded public school and since enrollment here was at historic lows and the campus has 29 classrooms on 11 acres, there is plenty of room to grow.

3. Captain Cooper covers the Big Sur area.

Pebble Beach

Pebble Beach is broken into three school districts as seen from the map at left. The Country Club areas of Pebble fall within the Pacific Grove and Forest Grove elementary district. Central Pebble is Carmel and Carmel River school and Upper Pebble Beach is within the Monterey school district.

Here are a two helpful links to more on this topic:

School Ratings:  http://school-ratings.com

What district are you?http://www.carmelunified.org/174110617152213990/site/default.asp

 There are also a number of private schools in the area, as listed here:

• All Saint’s Day School on Carmel Valley Road (through 8th Grade)
• Stevenson School (Lower school in Carmel & Upper school in Pebble Beach, boarding & day students)
• Santa Catalina School in Monterey (Lower school is co-ed, Upper is all girls, boarding & day students)
• York School off Monterey – Salinas Highway (Upper School)

Well there has certainly been a buzz in our community around a recent article in the New York times, “Federal Retreat on Bigger Loans Rattles Housing.” Monterey County was the main character in this article serving as an example of an area that will be affected more than others when it comes to the loan limit change slated for later this year. Essentially, the federal government has been backing mortgages up to $729,750, a limit that has been in place for the past 3 years. The government is expected to drop this loan limit to $483,000 for Monterey County. Not all counties have the same loan limit. The limit is based on the median price in the county, among other factors. Monterey County really encompasses two very distinct markets: the Monterey Peninsula  and the Salinas Valley. Therefore, our median price is brought down lower than other counties, where their loan limit will only drop 15% to $625,500. The NY Times article paints a nasty picture of increased downward pressure on pricing and fewer capable buyers. The bottom line is that yes, as I’ve stated before, loans are getting more expensive. Buyers will need to put down more to get a conforming loan, but, according to Bob Walker of Blue Adobe Mortgage, jumbo loans do exist.  Bob predicts buyers getting a jumbo loan will see their interest rate rise 3/8 of a percentage point. He cautions sellers to think about this new loan limit when pricing their homes. “Sellers should price to sell, not negiotate,” says Bob, “and consider offering seller buy downs” to bring down the rate of the loan.

When I talk to buyers there is a clear divide between those that believe 2011 is the year of opportunity and those that believe the market will continue to decline. Yes, the media paints a gloomy picture of a “double dip,” a flood of new foreclosures are expected to hit the market and yes, unemployment is still dismal. Only time will tell which path we are on, but I argue that this year will be flat and IS the year to buy. Here’s why:

1. The San Francisco Bay area and greater Los Angeles markets are our feeder markets. San Francisco and Silicon Valley in particular are heating up. 27-30% of all the deals that are closing in the SF Bay area are all cash. This figure is expected to rise to 35% this year. Silicon Valley is booming. Companies like Facebook, Twitter, Salesforce.com are all expanding with new offices, or really campuses, and hiring. Vacancy rates in San Francisco have declined from a high of 17% to 8%. Rents are back up to almost boom rates. The boom to our north is bringing back the vacation home buyers to our market.

2. Interest rates are going to remain flat this year, but are expected to rise by year end. You can read my previous post “The Rising Cost of a Declining Market” to understand just how an increase in interest rates affects you as a buyer. But bottom line, it will cost you more to borrow money in the not too distant future. Not only are rates expected to rise to 6% for a jumbo loan in 2012, but there is a risk aversion fee now put on every loan  ranging from 1/4 of a percentage to 3%.

3. Demand from international markets is also expected to increase, as I mentioned in another previous post, “Global Hot Spots.” We are really expecting to see this in the next 18 months. 

All in all, the market is expected to be flat in general this year. All cash is prevelant, and in some pockets of our area we do have a competitive, multiple offer scenario. Pebble Beach has been leading the high end activity with 5 sales over $4M since the beginning of the year. Carmel is mixed. It’s Golden Rectangle has really been golden, but the neighborhoods to the north are slower and still facing pressure on pricing. Although a pending sale on Randall Way with a list price of $3.4M points to a changing environment. Carmel Valley has been rather flat so far this year. The inventory still feels a bit overpriced and buyers seem to be waiting until that market adjusts further.

So where will this year take us? Only time will tell but I’d bet when we look back on 2011 we will view it as a year where some really good buys were had. Now the question remains, what side of the fence do you fall on?