Introduction

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

In most markets median home prices flattened. However, they are declining in Carmel-by-the-Sea (excluding the Golden Rectangle area) and the Central area of Pebble Beach. Due to the low number and wide variety of homes sold in the Lodge Area of Pebble Beach and Carmel Highlands it is difficult to comment on trends.

Generally, the number of homes sold over the past year continues to decline with the exception of the Country Club area of Pebble Beach which saw its sales rate double for the twelve-month period ending third quarter of 2019 when compared to the period ending second quarter of 2019.

This leveling of median home sales price along with a declining sales volume indicate a neutral market favoring neither the buyer nor seller.

Although the two Federal Fund rate reductions in the past three months have made homes more affordable, we believe the continued unease due to the lack of progress in US-China trade agreements, the shrinkage of the US manufacturing sector, and the current domestic and international political environments are contributing to a slow-down in the real estate markets.

Background

To understand how our local luxury home markets perform analyzing home sale price trends and volume over an extended period is the best approach. For this analysis we collected sales data from the fourth quarter of 2013 through the end of the third quarter 2019. We then calculated the trailing twelve-month median home price starting at the fourth quarter of 2014 and for each successive quarter along with the number of homes sold during the same twelve-month period for the select areas we follow.

A trailing twelve-month calculation smooths out seasonal variations. Using the median instead of average sales price ensures results are not skewed by the sales of a few top luxury homes, unless the number of homes sold during a twelve-month period is extremely low.

The linear trend line for median sales price over a five-year period was then calculated 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 4.8% over this same period 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 in Figure 1.
 

Figure 1. Areas Analyzed in Pebble Beach

As can be seen in Figure 2. below the trailing twelve-month median sales price in the Central area in Pebble Beach has declined for the past four quarters however the five-year trend line indicates a very modest home price growth of 2.1%. The Country Club area median sales price is essentially flat at -.2%. Interestingly the Country Club area saw a doubling in sales volume during the twelve-month period ending third quarter of 2019 when compared to the second quarter of 2019. By reviewing the individual home sale title records we determined the ratio of primary to non-primary homeowner remained the same at about 50%.

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

Central and Country Club areas of Pebble Beach.

Figure 3 below shows the results of our analysis for the Lodge area. Although this area shows a compound annual growth rate of 18.1% the number of homes sold has been extremely low resulting in very high-end luxury home sales to skew the compound annual growth rate.
 

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

Lodge area of Pebble Beach.

Our conclusion is that in general median home prices peaked during the past 12 -24 months across 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 in Figure 4.

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

Our trend line analysis in Figure 5 below indicates median luxury home sales prices increased in the Golden Rectangle with a compound annual growth rate of 1.4%. Prices peaked in 2017 and then leveled over the past 21 months ending September 30, 2019.

For the rest of Carmel-by-the-Sea median home prices have been declining with a negative compound annual growth rate of -2.4%. Median home prices in this area peaked in 2016.
  

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 as shown in the map in Figure 6 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 have increased in Carmel Highlands although the median sales price peaked in 2018 and then dropped significantly during the third quarter of 2019. The rest of Carmel has experienced a negative compound annual growth rate of 1.0% with prices peaking in 2017.

Both areas have experienced a deceleration in sales rate over the last four quarters.

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 analyzed the Monterra and Pasadera communities of unincorporated Monterey, as shown in the map below in Figure 8, as these areas contain a significant concentration of luxury homes in the Monterey area.

Figure 8. The Monterra and Pasadera Communities of unincorporated Monterey

Although our trend line analysis in Figure 9 below shows luxury home sales prices increased at a compound annual growth rate of 4.6%, prices peaked toward the end of 2018, then declined and appear to be flattening. Since prices are not increasing with the definite increase in sales volume, we conclude the Monterra and Pasadera communities are a neutral market.

Figure 9. Trend analysis and Compound Annual Growth Rate. This chart covers the

Monterra and Pasadera communities of Monterey

Summary

Our trend analysis for Pebble Beach, Carmel, and Monterey show median home prices have flattened while prices and sales volume peaked12 to 24 months ago.

When compared to the general California market compound annual growth rate of 4.8% the Monterra and Pasadera communities are comparable. Due to the small number of homes sold in the Lodge area and Carmel Highlands the five-year trends are suspect. In all other areas, our luxury markets have under-performed.

Even though we do not expect the steep decline in sales price and volume seen during the last recession, we do expect to see flat to declining median home sales prices and volume in the near term. This is indicative of a neutral market driven by external factors such as the national economy, mortgage interest rates, and recessionary fears.