Introduction

We periodically analyze how our various luxury home markets (sale prices greater than $2M) in Carmel, Pebble Beach, and Monterey perform in terms of median home prices.

 

Pebble Beach has been the clear leader with steady gains in median home price over a five year period beginning second quarter 2013 ending first quarter 2019. The Golden Rectangle neighborhood of Carmel-By-The-Sea and the Monterra and Pasadera communities of Monterey had modest gains, Prices have been declining for the rest of Carmel-by-the-Sea and unincorporated Carmel. Camel Highlands showed a large increase in median price compared to the 2013 – 2018 five year period however given the wide variety of home size and quality along with its low sales rate makes it difficult to objectively assess median price performance.

 

It’s important to note the number of homes sold over a twelve-month period declined during the last three quarters. While we do not know for certain what the future will bring, a decline in home sales activity along with the recent inversion of the US Treasury bond yields and the closing gap between the unemployment rate and inflation rate are typical recession precursors. It can result in increasing luxury home inventory with declining median home prices changing a neutral market to a buyers’ market.

 

Background

To understand how our local luxury home market performs, analyzing home sale price trends and volume over an extended period is the best approach. For this analysis we collected sales data from the second quarter of 2013 through the end of the first quarter 2019. We then calculated the trailing twelve-month median home price and number of homes sold during the same twelve-month period each quarter for the select areas we follow. Using a trailing twelve-month calculation smooths out seasonal variations and a median vs average sales price ensures the results are not skewed by the sales of a few top luxury homes.

The linear trend line for median sales price over the five-year time frame was analyzed to determine the compound annual growth rate (CAGR). This provides the historical market direction and growth rate which is shown in the figures that follow. We compare this to the overall California home market compound annual growth rate of 5.1% over this same time frame to assess how each market performs.

Pebble Beach

We divided Pebble Beach into three areas: Country Club, Central, and Lodge as shown in the map below.


 Figure 1. Areas Analyzed in Pebble Beach

 

The median sales price fluctuated particularly in Central and Lodge areas due to the small number of homes sold and the variety of home sizes and quality during any twelve-month window. Our trend line analysis indicates median luxury home sales prices increased in all areas with Lodge having a compound annual growth rate of 10.9% although it decreased from 13.5% as seen in the prior five-year window ending fourth quarter 2018. Compound annual growth rates in Central were 4.3% and in Country Club 3.2% both which remained the same from the prior five-year window. We saw a continued deceleration in sales rate in all areas. Median home prices have peaked in Country Club. It is less clear for Central due to the wide variety of home size and quality. The Lodge area does not appear to have peaked however its compound annual growth rate of 10.9% is unsustainable.



Figure 2. Trend analysis and Compound Annual Growth Rate. This chart covers the

Central and Country Club areas of Pebble Beach.


Figure 3. Trend analysis and Compound Annual Growth Rate. This chart covers the

Lodge area of Pebble Beach.



Carmel-by-the-Sea

We divided Carmel-by-the-Sea into two areas: the Golden Rectangle and the rest of Carmel-by-the-Sea as shown in the map below.



Figure 4. The Golden Rectangle and other neighborhoods of Carmel-by-the-Sea.

 


Our trend line analysis indicates while median luxury home sales prices increased in the Golden Rectangle with a compound annual growth rate of 1.8% they have slightly decreased from 2.1% over the prior five-year period ending fourth quarter 2018. The rest of Carmel-by-the-Sea median home prices have also decreased with a negative compound annual growth rate of 3.5% compared to the prior five-year period which was a negative 2.7%. In both areas we also saw a continued deceleration in sales rate. Median home prices have peaked.

Figure 5. Trend analysis and Compound Annual Growth Rate. This chart covers the

Golden Rectangle neighborhood and the rest of Carmel-By-The-Sea

 

Carmel

We divided unincorporated Carmel into two areas: Carmel Highlands and the rest of Carmel (excluding the Tehama community) as shown in the map in the figure below.



Figure 6. The Carmel Highlands and the rest of unincorporated Carmel

The median sales price continues to fluctuate widely in the Carmel Highlands area due to the small number of homes sold and the variety of home sizes and quality. Our trend line analysis indicates median luxury home sales prices may have increased with Carmel Highlands having a compound annual growth rate that jumped to 4.1% from 0.6% over the previous five-year window followed by Carmel with a negative compound annual growth rate of 1.3% which relatively the same from the prior window.  In both areas we also saw a continued deceleration in sales rate. Median home prices have peaked in Carmel but it is less clear for the Carmel Highlands due to the small number of homes sold and wide variety of product type.


Figure 7. Trend analysis and Compound Annual Growth Rate. This chart covers the

Carmel Highlands area and the rest of unincorporated Carmel excluding the Tehama community

 

Monterey

We looked at the Monterra and Pasadera communities of unincorporated Monterey as shown in the map below.

 

Figure 8. The Monterra and Pasadera Communities of unincorporated Monterey

 

The median sales price was fairly consistent even with the small number of homes sold during any twelve-month window since luxury homes in these communities are generally similar in size and quality. Our trend line analysis indicates median luxury home sales prices increased with the compound annual growth rate also increasing to 2.7% from 1.8%.  We also saw a flattening in sales rate. It is less clear if median home prices have peaked.


Figure 6. Trend analysis and Compound Annual Growth Rate. This chart covers the

Monterra and Pasadera communities of Monterey

 

Summary

Our trend analysis of select areas in Pebble Beach, Carmel, and Monterey show median home prices in general have had modest increases but with the exception of the Lodge area of Pebble Beach, have underperformed when compared to the overall California real estate market. Home prices have peaked in most areas and sales rate is decelerating.

Home sellers should consider these trends when determining the list price of their home as we believe the market is changing from a neutral to a buyers’ market, meaning purchasers of luxury homes will have an advantage over sellers in price negotiations.