Sales Trends – Sonoma County Blog

Housing: Start Small

Complaining about housing prices is a pastime that is matched by a quiet self satisfaction among those who were fortunate enough to have bought at the right time to ride the real estate roller coaster to unplanned wealth. What today’s first time buyers often fail to appreciate is that many of today’s housing winners started out small.

It would have been very common for GI’s returnng after the Second World War to rent a small apartment or live in a tiny house while they were starting a family. The classic FHA homes designed in the 1930’s often contained less than 1,000 square feet. Land was inexpensive and widely available and prices of labor and materials were within the reach of average households. Fast forward a few generations and the housing situation has gotten much more complicated…and expensive. We humans aren’t twice as big. We don’t need twice as much “stuff” as our ancestors. But somehow, the average new house is twice as big as it used to be.

I searched the MLS for Sonoma County today and found three active listings for homes under 1,500 square feet that were built after 2010. The same search for modern homes over 1,500 square feet had 65 results. That 20 to 1 ratio isn’t a mistake or aberration. It’s just what is getting built. It’s nobody’s fault, really. Buildable lots are hard to come by and expensive when you can find them. Development fees for new construction are often more costly than already expensive building permit fees. Together, those fees can surpass $100,000 making it impossible for builders to offer low priced homes.

The housing stock that remains from the days of smaller homes is in high demand since it is the only remaining “naturally affordable” housing. The only housing getting built today that is comparable to the FHA plans I mentioned earlier are the ADUs that are being added in backyards, created in garages, and carved out of spare bedrooms in existing homes. The combination of no new lot costs, limited development fees, and modest building permit fees allows these small homes to fill the need created by decades of failure to build enough new housing for a growing population.

Embrace the idea of small homes. It’s the fastest, most economical path to solving the joint housing problems of affordability and homelessness.

Average Sonoma Home Prices

Sonoma County Home Sales Prices chart since 2000 — Sonoma County Home Sales Prices 2000-2022

Rising home prices are a popular topic for homeowners. Not so much for renters and others trying to buy property in a challenging market. This century witnessed prices plummet in 2008 after the financial crisis. Since the market bottom in 2011 prices have shown a steady rise year over year. Covid helped shape a new market. Working from home ballooned into the primary way office workers did their jobs. Attractive locations with low home prices relative to San Francisco and the Peninsula took off in value. Last year saw record increases in prices.

Rising interest rates make the recent price increases challenge the real estate market. A useful tool from the California Association of Realtors called the affordability index shows that only 18% of California households could afford to buy the median priced home in the 3rd quarter of 2022. It hasn’t gotten better.

Prices and interest rates are going to be the story of real estate for the foreseeable future. The steady increase of home prices over the last decade is over for now. Sellers are going to have to accept that they will not get the record breaking prices their neighbors may have gotten in 2022. Until interest rates stabilize at more affordable levels, buyers will have to accept that their choice of homes will have a lower price ceiling.

Luxury Homes in Sonoma County

Sonoma County continues to be a favorite destination of smart buyers willing to pay a premium price for the wine country lifestyle. Many are successful and financially prudent Bay Area residents looking for second homes that will turn into their primary residence when they retire. Other highly-qualified buyers are looking for an additional residence or vineyard to add to their real estate portfolio for long term appreciation. Whatever their motivation, luxury can mean many things. For some, selecting the highest quality building materials is essential. Others might care less about finishes, but define luxury as a perfect location with wonderful privacy. Subjective reasons like this are important factors that drive buying decisions, but for our purposes, selling price is a convenient and objective marker for luxury. For 2022, we used $4,000,000 as the bar separating luxury homes from the rest.

Sonoma was the hottest spot for luxury property selling for over four million dollars. The town of Sonoma area accounted for 18 sales in that price range last year. Buyers appreciate Sonoma for the reasonable commute to San Francisco, the charming square, exceptional vineyards, and fascinating history. The map of luxury sales clearly demonstrates the attraction of Sonoma’s east side.

sonoma luxury home sales map showing east side of sonoma with the most luxury sales — Sonoma Luxury Home Sales for 2022

Healdsburg was also a strong contender for Sonoma County luxury property transactions with 11 properties selling for more than four million dollars. Healdsburg’s attractions to all market segments include great restaurants, a world renowned town plaza, three of the wine country’s premier appellations, and a host of local merchants dedicated to serving the public. What’s apparent from the Healdsburg luxury sales map is that country property dominated the luxury market with relatively few sales inside the city limits. Luxury, to Healdsburg buyers, appears to include acreage and vines.

Healdsburg luxury home sales map — Healdsburg Luxury Home Sales

An important factor to keep in mind as you look at Sonoma luxury listings on the properties linked below is that in this context luxury refers to selling price, not home quality. In many of the listings, the house may be an insignificant part of the overall value of the property, particularly on the large acreage and vineyard parcels. In addition, with the older housing stock typical of Sonoma and Healdsburg, even well built homes that were considered to be outstanding in their early years may have fallen on hard times due to deferred maintenance or simply failure to upgrade.

The most elusive property on the Sonoma County market today is a luxury contemporary home. There aren’t very many of them around to begin with, let alone as active listings. There were five homes constructed in 2022 that qualified as luxury. Three from 2021. None from 2020, and just one from 2019.

The shortage of wonderful, contemporary luxury homes may soon lead to an increased demand for buildable parcels as buyers decide the best way to get a great home is to build their own.

Sonoma Homes over $4,000,000

Healdsburg Homes over $4,000,000

Sonoma County Four Million Dollar Homes

Vanishing REO and Short Sales

If you are looking for an REO or short sale bargain in Sonoma County, you are too late to the party. The getting was good even through the beginning of 2013, but the volume of sales and new listings for distressed property just keeps shrinking. My daily newsletter of new REO properties used to contain two or three new listings every day. Now I don’t bother with the newsletter since it isn’t at all unusual to go a month without a single new REO listing.

Sonoma County Distressed Property Trends

Happily, fewer distressed sales is a good indicator that the housing market has fully regained a healthier footing. A very few REO transactions were still going on in 2013, but even then the volume was down at least 90% from the peak years for foreclosures. The chart tells the tale. Six years ago there were over 300 distressed homes on the market and over 150 sales per month were taking place. Three years ago there were less than 20 listings and sales take place each month. In the last six months we have had 16 REO sales and a dozen properties are active or contingent. It’s not an invisible part of the market, but it’s down another 90% from the right end point on the chart.

From my perspective, the bargain hunters should be focusing on fixers at all price points. The value priced portions of the market are always eager for good quality homes that have been upgraded with care. You might get lucky with one of the occasional REO properties on the market, but if you are serious about actually buying a home, you will have to consider homes that aren’t financially distressed.

Prices, bubbles, and timing

My housing trends post from a year ago was so spot-on that I didn’t want to write anything else about the market. It just couldn’t have been as prescient. Still, a year is a long time to spend helping people buy and sell property without writing about it. If you missed out on the 15% market rise. You are probably wondering whether 2014 is going to be another year of rapid appreciation. I am going to stick my neck on the block for my fellow real estate agents to chop at and say, “I hope not.”.

Why would another year of appreciation concern me?

My concern for first time buyers is at the top of the list. Sonoma County is one of the most beautiful spots in the world and the people that live and work here have created a casual ambiance that we all cherish. We need housing that’s affordable to our chefs, our musicians, our farmers and health care providers. Don’t forget the teachers, cops and firefighters, and administrative folks that keep our schools, businesses and government running. There’s a huge population of just regular folks that call Sonoma County home, and the housing market has to serve them all.

Many people, of course, prefer to be renters. It’s flexible and well suited for people who aren’t tied down with families or career choices. Traditionally, renters have been about a third of the housing market, and that’s probably a realistic figure. That leaves around 60-65% of local dwellers as home owners…or wannabe home owners.

My wish is for a healthy housing market with a good balance of buyers and sellers and a gently appreciating market. Notice that I called that a “wish” and not a prediction. My prediction is that we’re probably going to be closer to last year’s strong appreciation with an advantage on the side of sellers.

Housing: Start Small

Average Sonoma Home Prices

Luxury Homes in Sonoma County

Vanishing REO and Short Sales

Prices, bubbles, and timing

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Home Buyer’s Guide

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