Buyers and sellers who haven’t been paying attention to Sonoma County real estate are surprised when they are told there’s a shortage of homes on the market. There has been some national and state news coverage of declining real estate inventory, but until you start looking for a home, the shortage is not slapping you in the face to get your attention.
A normally intelligent and aware consumer might assume that the long slump in housing, particularly the active foreclosure and short sales markets, would have boosted inventory so that house hunting would be a simple matter of finding the right home and putting in a discount offer.
Instead, from the moment you start talking with a local real estate agent you are going to hear that inventory is low. So low, in fact, that the inventory shortage is the dominant factor in the real estate market in Sonoma County. As a buyer, you may have only half as many homes in your price range as you would have a year ago. You can still find your wine country dream home at a price you can afford, but at certain price points you and every other buyer looking for the same thing will be chasing too few listings. That’s already happening.
The accompanying chart (click to enlarge) shows the situation as it has developed over the last two years. We have gone from a six month supply (often assumed to be the point of balance between buyers and sellers) two years ago, to less than two months of inventory now. This imbalance defines the house hunting experience today.
For Sonoma real estate sellers, the shortage is the first opportunity in many years to put their home on the market and expect a significant number of buyers to knock on their door. Last year saw a rise in sales and a modest increase in prices. That was encouraging news for people with equity in their homes who were considering a move, but at the moment, large numbers of potential sellers are still on the sidelines. Some are clearly waiting for prices to improve or to get out from underwater.
The complicating factor for sellers who are waiting is that nobody can say with certainty that prices will rise significantly as a result of the real estate inventory situation. After all, appraisers still have to validate value and bankers still have to make loans, so the underlying prices of the market have to be supported by a recent history of nearby sales. About the only thing we can say with certainty is that attractive homes that are aggressively priced to sell will see a flood of buyers.
The last time the market had this type of imbalance was in the run up to the housing bubble. Loose money fueled the price increases then, and we don’t have that situation today. Great rates, yes, but the banks are insisting on full income and financial documentation and the appraisers are insisting on decent comps to justify valuations. It’s a much healthier situation for buyers and sellers alike. What we are likely to see moving into the spring home selling season for 2013 is a continuation of buyers returning to the market chasing too few listings. It could get interesting.
If you are a potential home seller in Sonoma County, talk to your preferred agent (or me, of course) about listing your home to take advantage of this inventory shortage. The whole real estate community will appreciate it.