Where Are We Going?
Where have we been?
Over the last three years, our local luxury housing market has generally followed national upward trends but on a moderate basis. For homes and estates that sold for more than $2million in Carmel-by-the-Sea, Carmel and Pebble Beach, median prices modestly increased, average home size generally decreased, more homes were sold year over year and took fewer days to sell. Of note is out-of-area homeowners from Texas represented between 20 – 30% of all buyers in Carmel-by-the-Sea.
Although the Monterey luxury market saw a sharp increase in the number of homes sold each year, the numbers were significantly smaller than seen in Carmel-by-the-Sea, Carmel or Pebble Beach. Median home sales prices stayed relatively flat, while the average home size and time required to sell increased significantly.
Where are we now?
Based on what we are reading and is being reported, the national and local housing markets are cooling. Although price gains are being realized, inventories are rising, and the pace of home sales is decelerating. Add to that, political turmoil, recent stock market volatility, and rising interest rates all create uncertainty for home buyers and sellers. Our area’s luxury home markets are not insulated from these global factors.
Where are we going?
Natural beauty and world class golf are our area’s primary attractions. As a result, tourism is a major economic driver and demand is created by out-of-area visitors for vacation homes or retirement homes.
When we consider the impact of various factors on the luxury housing markets in Carmel-by-the-Sea, Carmel and Pebble Beach, the proportion of local homeowners to out-of-area homeowners along with any geographic concentration in primary living location of out-of-area homeowners is key to what we expect will occur going forward.
We also believe out-of-area homeowners tend to purchase or sell a home more readily than local homeowners since it is not their primary home, and as with all homeowners, base their decision on their overall financial condition and the economic strength of the industry that drives their local economy.
As the most popular community for out-of-area owners, Carmel-by-the-Sea continues to have the smallest average home size and by far the highest average sales price/sf when compared to Carmel, Pebble Beach and Monterey. Only about a quarter of its homes are owned as a primary residence while around one third are owned by Bay Area residents and the remainder owned by other out-of-area California residents with some out-of-state. Even with the significant percentage of buyers coming from Texas over the past three years, Texans represent less than 5% of all homeowners.
Since approximately three fourths of Carmel-by-the-Sea homes are owned by out-of-area owners, we believe sellers during an economic downturn will be from these owners which will continue to keep the time to sell a home the shortest of the area’s luxury markets and result in prices that adjust to reflect market conditions the most rapidly.
In our experience in an economic slowdown or rising interest rate environment, out-of-area and primary residence homeowners are less inclined to trade-up to a higher priced home. As a result, first-time second home purchasers or retirees from the Bay Area are the most probable buyers, since their area’s economic strength is driven by the technology industry which will likely fare better than other sectors of the economy. We expect these first-time entrants to put downward pressure on home prices, since their limited experience owning a home in the area may result in them being interested in homes priced near the lower end of the market to limit their risk, even in the luxury segment.
As another popular community for out-of-area owners, Carmel has a median luxury home sale price generally equal to Carmel-by-the-Sea. However, in comparison it represents a value, since its average home size is generally 60% larger and average sales price/sf is 20 – 30% less. Carmel homeownership is close to equally split with just over half of its homes owned as a primary residence compared to out-of-area homeowners. Around one fifth are owned by Bay Area residents and the remainder are owned by other out-of-area California residents and some out-of-state.
When compared to Carmel-by-the-Sea, it has taken approximately 80% longer to sell a luxury home over the past few years, due to Carmel’s significantly lower percentage of out-of-area homeowners. We expect this to continue and translate into luxury sales prices taking longer to adjust to reflect market conditions.
In an economic slowdown or rising interest rate environment, current out-of-area and primary residence homeowners are expected to be less inclined to trade-up to a higher priced home. Like Carmel-by-the-Sea, first-time second home purchasers and retirees from the Bay Area are the most probable buyers and we expect these first-time entrants to put downward pressure on home prices.
Of the communities where out-of-area homeowners outnumber primary residence homeowners, Pebble Beach, unlike Carmel-by-the-Sea, is close to being equally split with out-of-area residents owning slightly more than half of the homes. Similar to Carmel, Bay Area residents own approximately one-fifth of the homes with the remainder owned by other out-of-area California residents with a few out-of-state residents. Pebble Beach luxury homes, in sharp contrast to Carmel-by-the-Sea luxury homes, are on average twice as large and have a median sales price over 25% higher.
Due to a significantly lower percentage of out-of-area homeowners and significantly higher median price, we expect the time to sell a Pebble Beach luxury home will continue to be comparable to the extended time required in Carmel and result in sales prices taking longer to adjust to reflect market conditions.
As with Carmel-By-The-Sea and Carmel, we believe in an economic slowdown or rising interest rate environment current out-of-area and local homeowners will resist trading up to a higher priced home. As a result, first-time second home purchasers and retirees from the Bay Area are again the most probable buyers, since their areas economic strength is driven by the technology industry which will likely fare better than other sectors of the economy. We expect these first-time entrants to put downward pressure on home prices, since their limited experience owning a home in the area may result in them being interested in homes priced near the lower end of the market to limit their risk, even in the luxury segment.
As the most popular community for a primary residence, Monterey has the lowest median luxury home sale price when compared to Carmel-by-the-Sea, Carmel and Pebble Beach. It represents the greatest value, since its median price, approximately 5 – 10% less than the median price in Carmel-by-the-Sea or Carmel, has stayed flat over the past three years while its average luxury homes size has materially increased to a point where it is now three times the average luxury home size in Carmel-by-the-Sea. Over three fourths of Monterey’s homes are owned as a primary residence, significantly minimizing the impact out-of-area homeowners have on its market.
The amount of time it takes to sell a home in Monterey’s luxury market has increased by almost 50% in the last 12-months and currently represents the longest time to sell a home when compared to Carmel-by-the-Sea, Carmel and Pebble Beach. Due to the large percentage of homes owned as a primary residence, we expect sales prices will also take the longest to adjust to reflect market conditions.
In an economic slowdown or rising interest rate environment, current primary residence homeowners and the few out-of-area homeowners that exist will be less inclined to trade-up to a higher priced home. We expect minimal activity from new first-time second home purchasers although new out-of-area retirees may find the area appealing based on its value relative to Carmel-by-the-Sea, Carmel and Pebble Beach. As demand falls away, we also expect the lack of activity to put downward price pressure on the luxury homes that are ultimately sold.
If you are an out-of-area home buyer, become familiar with the homes in your preferred community now. Although real estate sites on the Internet can provide a general sense of the types of homes available through still photography and videography, there is no substitute for visiting a home in person. Visit homes that are slightly above your budget. This will allow you to develop the ability to quickly identify your ideal home as prices soften. Contact us if you would like to see and learn more about currently available luxury homes in Carmel-by-the-Sea, Carmel, Pebble Beach or Monterey.
If you are a homeowner who wants to realize the gain in value that has occurred since you purchased your home but would prefer not to hold it through an entire market cycle before the price recovers to its current level, then you will want to consider selling your home soon. Contact us if you would like to discuss how current economic and political events may affect the price of luxury homes in Carmel-by-the-Sea, Carmel, Pebble Beach or Monterey and learn how we can help you sell your home.