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.

Going forward we believe these factors have created an environment where median sales prices and number of homes sold will be flat for the remainder of the year.

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.

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 4.6% over this same time frame to assess how each market performs.

Additionally, we obtained homeowner information from Chicago Title Company to determine the make-up of home ownership (i.e. primary or out-of-area) for all homes in the neighborhoods we follow. Carmel-by-the-Sea is predominately a secondary home ownership market with roughly 80% out of area homeowners.  Pebble Beach and unincorporated Carmel are evenly split between primary and secondary homeowners. Monterey a primary homeownership market.

A summary of homeownership can be seen in the table below:

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

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. The Golden Rectangle is the most desirable area being easily walkable to both Carmel village with its shops and restaurants and the ocean with its white sand beach.

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%.

We consider home purchases in these areas discretionary since the Golden Rectangle has 85% out of area owners and the rest of Carmel-by-the-Sea has 76% out of area owners. As a result, demand for these homes fluctuates to a larger degree with the owner’s primary home value, and, economic and political conditions.  

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

We divided unincorporated Carmel into two areas: Carmel Highlands and the rest of Carmel as shown in the map in the figure below. Of the areas within unincorporated Carmel, the Carmel Highlands community is iconic given it is located near Pt. Lobos, the Highlands Inn and along the scenic coastal Highway 1 route.

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.

In the rest of unincorporated Carmel, the median sales price has been flat since peaking over two years ago third quarter 2017. Carmel has experienced a negative compound annual growth rate of 1.0% which is the same from the prior period. Sales volume peaked about a year and half ago second quarter 2018 and has generally declined.

Our conclusion is that median home prices have declined from their peak across all of unincorporated Carmel. Due to the small number of homes typically sold in Carmel Highlands the median home prices swing widely. Therefore, it is unclear what sales prices will be this coming year. For the remainder of unincorporated Carmel, we expect prices to stay flat through the rest of the year.

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

We looked at the Monterra and Pasadera communities of unincorporated Monterey as shown in the map below because they contain the highest concentration of homes in Monterey priced at $2M+.

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

Our trend analysis of select areas in Pebble Beach, Carmel-by-the-Sea, and Monterey show median home prices have generally declined in 2019 compared to 2018. Home prices increased in some areas of unincorporated Carmel.

Sales volume has increased in Pebble Beach and Monterey while has declined in all areas of Carmel.

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