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Guy
Marin County puzzling home price trends. What's up with Stinson Beach?
Summary
Marin County home price trends are puzzling in several respects.
First, they skyrocketed during this Work From Home (WFH) era. When every demographic and mortgage rate trends suggested they should have cratered.
Second, they are associated with huge divergence between localities, far more than one would expect.
When focusing on a WFH period from April 2020 to the end of 2022, Marin County’s population dropped abruptly by more than – 3.0%. Over the same period, mortgage rates rose from 3.0% to close to 7.0%. The combined rapid population contraction and increase in mortgage rates should have caused Marin home prices to plummet. Instead, they skyrocketed by around + 30%!
We think of Marin County as a homogenous aggregation of localities from a real estate market standpoint. It is not. There are very large divergences in home price trends between the different localities.
The table below outlines the overall growth and compounded annual growth rate in home prices (using Zillow Zestimates) for 20 different localities in Marin County since January 2000.
Stinson Beach home prices have grown so much faster than the home prices for the other 19 localities. Currently, Stinson Beach is the third most expensive locality behind only Belvedere and Ross. And, it is ahead of Tiburon and Kentfield.
Based on current trends, Stinson Beach could easily pass Ross within the next year. And, it could even pass Belvedere within the next 5 years.
Why have Stinson Beach home prices risen so much faster than for any of the other localities? I do not know. You are welcome to post an informative answer to this question at the end of this essay.
Content
- Impact of Work From Home on Marin County home prices
- Home price trends from January 2000 till January 2024
- Home price trends since January 2000 on an indexed basis
- The Housing Bubble.Home price trends from December 2005 to May 2014
- The COVID era.Home price trends from February 2018 to January 2024
- Assessed Value vs Market Value as of January 2024
Impact of Work From Home (WFH) on Marin County home prices
Within this section, we will focus on just 11 Marin County localities for which there is good population data available.
Let's look at two different outcome variables.
- WFH impact on the Marin County population
- WFH impact on Marin County home prices
WFH impact on the Marin County's population
I could find data on the following 11 localities at the California Department of Finance (DoF).
Over the reviewed period, Marin County experienced one of the most abrupt drops in population among all US counties. Given that Marin County home prices should have dropped. Let's look at home prices next.
WFH impact on Marin County's home price
As shown below, instead of dropping Marin County home prices skyrocketed by close to 30% within less than 3 years.
Relationship between change in population and change in home price
A rapid drop in population reflects a drop in demand for housing. But, despite this drop in unit demand, home prices increased rapidly.
The scatter plot above shows a near-random relationship between change in population (the independent variable) and change in home price (the dependent variable).
The above is challenging to explain.
Understanding the combined impact of the rise in home price and rise in mortgage rates
Over the reviewed period 30-year fixed mortgage rates rose from around 3.0% to close to 7.0%. The table below explores what is the combined impact of the increase in home prices and the increase in mortgage rates on monthly mortgage payments (assuming 100% financing).
Let's say someone bought a home in early 2020 and financed the purchase with a mortgage at 3.0%. This homeowner sold his home at the end of 2022 for 25% more than he bought it for. The new buyer finances the home purchase using a mortgage at 7.0%; his resulting monthly mortgage payment is twice as high as the original owner's!
(1 + home price increase)(1 +increase in mortgage payment due to rate increase) - 1 = increase in mortgage payment level
(1 + 25%)(1 + 58%) - 1 = 97% increase in mortgage payment level
As shown above, the impact of the rising mortgage rates can be far greater on the mortgage payment level than the already large impact of rising home prices.
One can explain the conundrum of rising home prices despite an abrupt drop in population (lower unit demand) and higher mortgage rates by figuring that the people moving into the County had higher income, capital, and wealth than the people moving out. And, that many more people moved out than moved in.
Can Marin County home prices continue to rise despite a continuous decline in population and high mortgage rates? No.
At some point, home vacancy rates will rise and home prices will flatten out or decline. I recollect that from 1990 to 1995, Marin County home prices were flat. And, as we will soon review within this essay in May of 2014, Marin County home prices on average were no higher than in December of 2005 (over 8 years earlier). In the near future, we are likely entering a period of flat home prices over several years.
Exploring the divergence in Marin County home prices
Here we will focus on 20 different localities within Marin County using Zillow's data of the median Zestimates for each locality.
What is the difference between a city, a town, and a census-designated place (CDP)?
Town: Similar to cities, towns also have permanent boundaries and established government structures. Towns are often incorporated places with specific legal statuses and local administrations. But, their government structure is typically simpler than cities'. And, they typically have fewer autonomous executive powers. They may still have the ability to raise taxes and bonds.
Census-Designated Place (CDP): A CDP lacks permanent boundaries like cities or towns and does not have a formal government structure. CDPs are areas identified by the U.S. Census Bureau for statistical purposes to represent communities that resemble cities but are not incorporated as such.
Home price trends from January 2000 till January 2024
With 20 different localities, the best way to review home price trends is to look at a facet grid. That is so that we can see the trend for each locality individually.
When looking at the above facet grid, pay attention to Stinson Beach. It is often an outlier to all the other localities, as its home prices have risen a lot faster. Also, pay attention to the Median at the bottom of the grid as a relevant reference point.
After viewing the trends for each locality individually, we can now better understand such trends by viewing these together.
The table above on the right serves as a legend for the graph on the left. The table sorted the data by home prices as of 1/31/2024 (yellow highlight) in descending order. Thus, you can readily infer that the top 5 lines on the right side of the graph are in descending order: Belvedere, Ross, Stinson Beach, Tiburon, and Kentfield.
The table on the right has a lot of interesting data. Below we give it a closer look.
The table above shows a spectacular increase in home prices over the reviewed period. And, such home prices rose a lot faster than for the local CPI inflation rate indicator (using the San Francisco - Oakland - Hayward MSA).
Regarding the increase in home prices, Stinson Beach really stands out.
The graph on the left shows that Stinson Beach home prices rose from 100% of Mill Valley home prices in 2000 to close to 180% in early 2024. Over the same period, Stinson Beach home prices rose from 60% to 110% of Tiburon's home prices (graph on the right).
These trends are astonishing. Why have Stinson Beach home prices risen so much faster than anywhere else in Marin County?
Home price trends since January 2000 on an indexed basis
When indexing the data so that all home prices are equal to 100 in January of 2000, the faster rise in Stinson Beach home prices is even more apparent.
Within the graph below, see how Stinson Beach's rise in home prices just towers above all others.
As shown in the table below, Stinson Beach home prices have risen so much faster than all others. There is a far greater difference in home price growth between Stinson Beach and Larkspur in 2nd place, than between Larkspur and Nicasio in last place (20th). What is so different about Stinson Beach?
The time series graph below focuses on just three indexed trends: Stinson Beach, the Median, and Nicasio (20th). You can readily see that there is little difference between Nicasio (20th) and the Median. But, there is a huge difference between Stinson Beach and the Median. Again this divergence is baffling.
The Housing Bubble
Home price trends from December 2005 to May 2014
We are looking at the downward-sloping phase of the Housing Bubble. Within Marin County home prices pretty much peaked around December 2005, then they crashed for several years. And, they recovered their former December 2005 level around May 2014. At least that is the case for the Median.
See the facet grid level reviewing this period on an indexed basis where December 2005 = 100.
As shown above, you can see that the majority of localities' home price trend is not that far off from the Median (reaching back to a level of 100 by May 2014). But, again Stinson Beach is the outlier on the upside, as its home prices have recovered and grown far more rapidly.
The graph and data below confirm the same thing, Stinson Beach has a far more rapid home price recovery and growth. Throughout this Bubble period, Stinson Beach is the only locality that experienced home price growth that met or exceeded the overall CPI increase for the region (San Francisco - Oakland- Hayward MSA).
The graph below compares the highest (Stinson Beach), the lowest (Nicasio), and the Median. Again, Stinson Beach is much above the Median throughout the period. Meanwhile, Nicasio, for the majority of the time is not as far below the Median. This asymmetry within this data set is perplexing. Again, what is it about Stinson Beach?
The COVID era
Home price trends from February 2018 to January 2024
I am going back in time a couple of years before COVID really hit because, by early 2018, home prices had very much flattened. We would have expected that by the time COVID hit, local home prices would have cratered. One would have expected this prospective home price downturn to be reinforced by the upcoming rapid immigration out of Marin County and the simultaneous rapid rise in mortgage rates. This confluence of major headwinds that we have already reviewed within the WFH section should have caused a severe downturn in Marin County's home prices. But, as we know just the opposite happened.
When looking at the home price increase on an indexed basis, Stinson Beach stands out again.
Throughout this period, Stinson Beach home prices have grown far faster than the Median and the local CPI.
The graph below outlines this repeated asymmetry whereby Stinson Beach home prices grow a lot faster than the Median. Meanwhile, Lagunitas' (the slowest) home price trend is not that much lower than the Median.
Assessed Value vs Market Value in January 2024
Let's review the estimated assessed value relative to the market value of home prices within the 20 localities.
Let's say a home has a market value of $1,000,000 and an assessed value of $700,000. In this case, the assessed value is 30% below the market value. I will call that an assessed value discount of 30%.
Next, let's estimate what is this assessed value discount for homeowners who have purchased their homes in 2005, 2006, 2007, and all the way up to 2019. And, figure out what is the resulting assessed value discount in January 2024.
What would we expect?
Homeowners who have purchased their homes a long time ago would benefit from a greater assessed value discount. As an intuitive example, if homeowners purchased their home in 2005, they may have reaped a 40% assessed value discount by 2024. Homeowners from more recent cohorts (2006, 2007, etc.) would reap incrementally lower assessed value discounts.
The above assumes that home prices increase at a faster rate than assessed value which is capped at 2% per year.
The table below explores different potential scenarios of resulting assessed value discounts given different home price increases per annum (from 3% to 7%) and different number of years of homeownership (from 5 to 25 years).
The graph below illustrates how the assessed value discount declines as the holding period of the homes shrinks assuming that home price increases at 5% per year.
When looking at our data set of home prices (using Zestimates), the trend in assessed value discount diverges much from the expected scenario depicted above. This is because of the impact of the Housing Bubble.
When looking at the graph above, you can see that homeowners who bought in 2005 close to the peak experienced far lower assessed value discounts than the ones who bought close to the bottom in 2012. That makes good sense once you grasp the impact of the Housing Bubble over its entire cycle. From 2012 to 2019, the declining trend is in line with what you would expect based on the basic arithmetic presented earlier.
The table below indicates that Stinson Beach is associated with far greater assessed value discounts vs any of the other localities.
The table below just focuses on three different purchase dates (2005, 2012, 2015). And, Stinson Beach as usual stands far above the other localities.
The graph below compares the assessed value discount for Stinson Beach vs Woodacre, the lowest one.
THE END