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 price.
In most markets we continue to see a general downward drift in median sales price and number of homes sold.
We believe the primary reason for the decline in home prices and sales volume is predominately driven by buyers whose primary home is outside of the area.
Factors driving declines include: a reduction of new second home/HELOC loan interest and property tax deductions from 2018 Tax Reform Legislation; economic uncertainty created by an elusive US – China trade agreement; better investment alternatives in a strong stock market, and Bay area homeowners (the largest percentage of outside of area owners) who may be experiencing a sense of wealth decline due to a softening in the value of their primary home.
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 MLSListings.com databases from the first quarter of 2014 through the end of the fourth 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 using a median instead of average sales price ensures the 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.
Pebble Beach
We divided Pebble Beach into three areas: Country Club, Central, and Lodge as shown in the map below. For our review we treat these areas separately because they have distinctly different homeowner demographics, lifestyles, geography, topography, and products. We look at specific neighborhoods within them to gain better insight into market conditions.
Figure 1. Areas Analyzed in Pebble Beach
The trailing 12-month median sales price in the Central area in Pebble Beach has generally declined since peaking about a year and half ago third quarter 2018 although the five-year trend line shows an overall modest growth rate of 1.2%.
In the Country Club area median sales price has also generally declined since peaking about three years ago first quarter 2017 and is essentially flat at 0%. Interestingly the Country Club area saw a doubling in sales volume during the twelve-month period ending fourth quarter of 2019 when compared to the fourth quarter of 2018. To understand why this might have occurred we reviewed the individual home sale title records and determined the ratio of primary to non-primary homeowner remains the same at about 50%. We saw a significant downward shift in the group of primary home buyers over the age of 65 from 75% in 2018 to 25% in 2019. It is possible that part of this was driven by Pacific Grove home prices climbing to the point where the Country Club area has become more of a value allowing families with school aged children and teenagers to remain in the Pacific Grove School District and live in a larger home.
Figure 2. Trend analysis and Compound Annual Growth Rate. This chart covers the
Central and Country Club areas of Pebble Beach.
The trailing 12-month median sales price in the Lodge area in Pebble Beach has declined since peaking about eighteen months ago first quarter 2019 although the five-year trend line shows a significant growth rate of 16.2%.
From our demographic analysis we know that 76% of homes in the Lodge area are owned by out of area homeowners. That coupled with the fact the median sales price for the past year have been over $7M means that homebuyers are in a different economic bracket. We believe this group of homeowners may be more financially insulated from economic swings and political uncertainties than the rest of the general population. However, the number of homes sold in this area has been extremely low allowing a few very high-priced 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 median home prices have declined from their peak across Pebble Beach and now expect them be flat through the rest of the year.
Sales volume across the different areas of Pebble Beach has been highly variable. In Central we expect it to remain flat while it is likely that the higher sales volume seen recently in the Country Club area can be sustained as long as there is sufficient inventory in the $2M+ price range.
Carmel
Carmel is composed of the incorporated city of Carmel-by-the-Sea and unincorporated Carmel. As with Pebble Beach we treat these areas separately because they have distinctly different homeowner demographics, lifestyles, geography, topography, and products. We look at specific neighborhoods within them to gain better insight into market conditions.
Carmel-by-the-Sea
Figure 4. The Golden Rectangle and other neighborhoods of Carmel-by-the-Sea.
The trailing 12-month median sales price in the Golden Rectangle has generally declined since peaking about a two years ago fourth quarter 2017 although the five-year trend line is generally flat with a growth rate of 0.7%.
The rest of Carmel-by-the-Sea median home prices have been declining since peaking almost four years ago first quarter 2016 with a five-year trend line showing a decline of 2.4%.
Figure 5. Trend analysis and Compound Annual Growth Rate. This chart covers the
Golden Rectangle neighborhood and the rest of Carmel-By-The-Sea
Unincorporated Carmel
Figure 6. The Carmel Highlands and the rest of unincorporated Carmel
The trailing 12-month median sales price in the Carmel Highlands has generally declined since peaking about a year ago first quarter 2018 although the five-year trend line is generally increasing with a growth rate of 7.0%. However, the median sales price has fluctuated widely due to the small number of homes sold and the variety of home sizes and quality. Also, we see that home sales volume peaked in third quarter 2015 but has not recovered and is now near its lowest point.
Sales volume across the different areas of unincorporated Carmel has been declining. We expect volume to be relatively flat through the end of the year due to stable economic drivers as recessionary fears subside.
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
Figure 8. The Monterra and Pasadera Communities of unincorporated Monterey
The trailing 12-month median sales price in Monterra/Pasadera has generally declined since peaking about a year ago fourth quarter 2018 although the five-year trend line is increasing with a growth rate of 4.6%.
We note over the past five years sales volume has fluctuated widely while median sales price has made steady gains comparable to the overall housing market in California. We believe this is most likely due to the fact that 84% of homeowners make Monterra/Pasadera their primary residence.
Given the characteristics of this primary homeowner market we expect it to continue to perform similar to the general California housing market.
Figure 9. Trend analysis and Compound Annual Growth Rate. This chart covers the
Monterra and Pasadera communities of Monterey
Summary