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The Great Equilibrium

Sonoma County 2011 real estate stats show another boring year of price stability. For anxious buyers and sellers of Sonoma County real estate, the news of a flat marketplace is probably the most reassuring thing they could hear. They’re  not going to get rich on price appreciation like everyone thought they would in the hot bubble years in the mid 2000’s, but neither are they going to lose their shirt like the unfortunate  souls (like me) who bought in 2008 midway through the decline.

Sonoma County 2006 to 2011 single family home quartile analysis
2006 through 2011 Single Family Home Quartiles

I was rash enough to call a bottom of the market in April of 2009. I’ve almost had to eat crow a few times since then, but we have had a remarkably steady median price performance for nearly three years. It’s up a little and down a little, but three years is plenty of time to see if there was still a lot of excess built into housing prices. The strong interest of investors buying single family homes for rental properties provides a clue that the market has solid fundamentals today; at least solid enough to create investor confidence.

I analyzed the numbers for the last six years by quartile. That gives numbers for not just the median at 50%, but the 25th and 75th percentiles as well. I was curious if the whole market had moved in unison or if different price tiers behaved differently. I found some evidence for each theory. You can see in the chart (please click to see it in larger size) the simultaneous beginning of the end of the bubble (for each price segment) around August of 2007.  The precipitous decline ended for all tiers in March of 2009, marking a year and a half long shedding of nearly 40% or more in value for each tier.

I found that although the dollar difference between each tier was diminished, the percentage value between tiers has increased. As the figures stand at the end of 2011, the gap between the 25th and 75th percentile is 50% and about $200,000.  At the height of the bubble, it was 30% and $250,000.  My reading is that the demand for entry level housing during the crazy-time drove the price of even the lowliest shanty to record highs not supported by the wage structure of Sonoma County. On the other hand, the 75th percentile was still somewhat restrained in absolute terms by the ability to pay of high income two earner households. Remember, the 75th percentile are regular middle class folks who were trying to pay for a $750,000 home (in 2007) that’s priced today in the mid-$400k range. In hindsight, we were all crazy.

Be glad we live in more boring times.

 

Posted in: Buyer Guide, Homes, Real Estate, Real Estate Guides, Seller Guide, Stats

Sebastopol Residential Sales

Sebastopol home sale volume - 6 month intervals
Sebastopol Home Sales 2006 through June 2011

Sebastopol recorded 24 residential sales in June which helped bring the first half of 2011 to a close with 102 homes sold.  That matches nearly exactly the figures from the first half of 2010, but without the First Time Home Buyers Tax Credit that drove many buyers into the market in 2010 in search of tax credits. This year we also have a more challenging lending environment with tough qualifying standards and higher down payments required more frequently.

Sebastopol residential sales by REO, short sale and open market sales
Sebastopol Monthly Sales by Sales Condition

The mix of REO, short sale and open market sales (shown as NONE in the charts) varied significantly from month to month so far this year, but the samples size is too small to draw any useful significance. It’s enough to note that  Sebastopol home sales include mainly open market and REO sales with a decent proportion of short sales thrown into the mix.

One of the anomalies of Sebastopol that has persisted for years is a  slower reaction to the housing bubble bursting than the rest of the County.  Most other cities in Sonoma County showed significant valuation declines until early 2009 and have maintained a reasonably stable price plateau since then. Sebastopol, on the other hand, maintained bubble-level pricing somewhat longer and has continued to search for a market bottom.

Sonoma Average Home Sales Price 2006-2011
Sonoma Average Home Sales Price 2006-2011

To illustrate this, please look at the Sonoma 2006-2011 chart and find the first month that the average price dropped below $600,000 and then find the same price drop in the Sebastopol chart. (For non-chart-followers, it was August of 2008 for Sonoma and not until March of 2009 for Sebastopol.  Prices in Sonoma fell all the way under the $400,000 barrier for several months in that early 2009 time frame, but have since recovered and haven’t tested the $400,000 floor again since then.

Sebastopol Average Home Sales Price 2006-2011
Sebastopol Average Home Sales Price 2006-2011

Sebastopol, on the other hand, continued to have price declines after spring 2009 and has had several months in the first half of this year with the lowest numbers in the five years of the chart’s time frame.  I have a few ideas why Sebastopol remained strong early, but is currently a softer market than Sonoma, but I don’t think anyone has a definitive answer.

In any case, Sebastopol home sales closed out the first six months of the year in strong fashion.  I expect this desirable town will continue to have a strong real estate market. Great schools, charming country properties, and a pleasing climate all add to the charm of Sebastopol and make it a must-visit town for prospective Sonoma County  home buyers.

  • Sebastopol Homes Under 1 Acre
  • Sebastopol Homes 1 to 5 Acres
  • Sebastopol Homes 5 to 10 Acres
  • Sebastopol Homes Over Ten Acres

Posted in: Buyer Guide, Real Estate, Sales Trends, Sebastopol Real Estate, Seller Guide, Sonoma Real Estate

Sonoma County Home Sales Report

I plead guilty to liking numbers. I don’t track the Giants batting averages, but I do know how much houses in Sonoma County are selling for. I also know which areas are hot and which could use more buyers.
As a potential buyer or seller of a home in Sonoma County, watching these trends for pricing and market demand makes you a better decision maker.

Sonoma Home Sales and Inventory
Sonoma County Home Sales DOM
The first chart (click to enlarge) plots two separate sets of numbers. The height of the bars represents the number of units that are active, contingent, pending, or sold. You can consider pending to be the same as sold. The second set is represented by the three clusters of four columns. Each cluster represents homes that fall into one of the three categories the MLS calls “sales conditions”. These are REO (Real Estate Owned by banks), short sales, and none (regular open market sale). Reading across the chart shows you the relative sales activity within each cluster.
Some Observations
1. The first surprise for many people is that the cluster of REO columns in the middle has no tall bars. There just aren’t a lot of active bank owned listings in Sonoma County. Next, notice that the three columns on the right side of the REO cluster contain more total height than the “active” column. Even the sold column (on the right of the middle cluster) by itself is higher than the active column. Translated for buyers:
Sonoma County doesn’t have many available REO listings. The ones that do come on the market get sold quickly.
I’ll show that in the next chart.
2. Another clear observation to be drawn is that regular, open market sales still have plenty of inventory relative to sales (look at how tall the left-most bar is in the left hand cluster). In Sonoma County it looks like about a four to five month inventory of unsold homes (not REO and short sales). That’s not bad compared to some parts of the country that are looking at more than a year’s worth of unsold inventory.
3. There are almost as many contingent short sales as active short sales. These are the transactions that drive everyone crazy due to the uncertainty of bank approvals, desperate behavior by some second lien holders, and sheer anxiety of waiting, and waiting, and waiting.

Sonoma Home Sales
Sonoma Home Sales and Inventory
The next chart shows the same groupings of information, but instead of counting the number of units in each category, this chart shows the Days on Market (DOM). This is a good indicator that complements the numbers in the chart above and provides richer content.
Some DOM Observations
1. The sold column in the right cluster (short sales) represents half a year. The comparable numbers for “none” and REO are three and a half months and two months respectively. This far longer sales cycle is one reasons agents and buyers are reluctant to get involved with a short sale.
2. The average DOM for an REO is half that for an open market sale. We’re looking at an average of around 60 days for listings and sales. That’s fast in any book.
3. The approximate active DOM for open market sales is close to four and a half months. That tracks very closely with the data on inventory levels in the first chart which indicates a market absorption rate that would add up to a four and a half month supply of homes.

Of course, this is a sales and inventory report from the first two months of 2011. We are likely to see surges of new homes coming on the market as the traditional selling season picks up steam. That will change the specific numbers, but I think the trends from these charts are clear.

  • REO sales continue to be hot.
  • Short sales continue to take a long time.
  • Open Market sales have a relatively larger inventory than the other categories, but are selling within four months on average.

For the easiest viewing of REO properties using easy to navigate maps, please visit reo.sonoma.net

Posted in: Buyer Guide, REO, Sales Trends, Seller Guide

Sonoma County Residential Sales

Sonoma County Residential Sales 2006-2010
Sonoma County Residential Sales 2006-2010
I’ve been diving into 2010 residential sale details trying to understand the Sonoma County real estate market for myself and my clients. The result that is clearest and a surprise to me was adding 2010 results to the chart of sales for the past four years. This chart shows clearly that we seem to be in a stable post-bubble plateau. (click on chart for full sized version)
I will do a lot of posts looking at home sales in individual towns over the next few months. I’ll break down the results by REO vs. short sales vs. open market sales. I’ll look at unit sales, average prices, Days on Market and other statistics that help at the level of an individual buyer or seller of a specific property. What all that analysis will not do is give you a clearer snapshot of real estate in Sonoma County over the last five years than this chart.
Past trends aren’t necessarily a predictor of the future. The stable results from 2010 may look a lot more erratic for different cities or different price segments. Tighter lending standards and rising interest rates may put downward pressure on prices. Continued high unemployment is keeping many otherwise qualified buyers out of the market. Many people trying to relocate to Sonoma County can’t sell their homes in Washington, Colorado, or other parts of California, so the impact of their buying power is still in the future. Despite those pitfalls that still litter the housing market, I’m pleased to see that the bottom of the Sonoma County real estate market that I predicted in April of 2009 still seems to be holding.

Posted in: Buyer Guide, Real Estate Guides, Sales Trends, Seller Guide, Stats, Uncategorized

Real Estate Thanksgiving

Thanksgiving is the right time for me to acknowledge all the great people that I get to work with. Every Sonoma County real estate transaction has an abundance of helping hands.  Some deal with the clients on both sides of the sale. Many more are working as back office professionals assisting with financing, title,  insurance, inspections, and other fields.  Here’s a sampling of the people in a typical Sonoma County country property sale.

The process starts with a property owner with a home or raw land they want to sell. The seller hires a listing broker to sell their property and list it with a multiple listing service. That listing in the MLS is an invitation to other agents and brokers to present offers.

A selling agent represents the buyer who wants to make an offer. Either the agent, or more likely with today’s internet searching, the buyer, locates and identifies the property as being of interest. The selling agent and buyer produce an offer that is submitted to the listing agent for presentation to the seller. When the cycle of offer and counter-offers arrives at a mutually agreed set of terms, the contract becomes ratified and the clock begins. At this point, there are a seller and a buyer, the two most important actors by far, and a listing agent and selling agent, each of whom may have at least one or more co-agents, and who is typically working on behalf of a real estate broker.

Each agent working at a typical brokerage will have a support staff for transactions that can include transaction coordinators  to manage paperwork flow and completion and general office assistance to keep the lights on, copies made, faxes monitored, phones answered, etc. You should visualize at least one administrative person on each side of the transaction.

Once the contract is agreed to, the document and earnest money deposit is provided to the escrow/title company to hold the funds and open an escrow. The escrow process will produce a preliminary and final title report, handle all the funds for the transaction, manage the paperwork and record the deed in the buyer’s name at the completion of the transaction (COE or Close of Escrow). For simplicity, we’ll just call out an escrow officer to handle the paperwork and a title officer to assemble all the documents needed to provide clear title to the buyer.

While the title officer gets busy with researching deeds, easements, and other recorded documents,  the buyer’s lender is getting started with loan paperwork. Staying with the simplest model, there is the loan originator, that’s the person the buyers deal with on a personal basis, either over the phone, via email, or in a meat meeting. They will typically have a processor that helps to get the masses of documentation in place. Farther up the decision chain is the underwriter who assembles all the facts of income and credit to make a decision based also on the work product of yet another person, the appraiser, who evaluates what the property is worth.

Running on a parallel track with title and lending is the process of due diligence. That’s a period for careful investigation of property conditions by the buyer. Each property may require a different set of inspectors, but for country property it’s not unreasonable for a buyer to use a general building inspector, a septic inspector, a well inspector, a pest inspector, a surveyor, a geotechnical engineer, and more.

Before COE, the current owner’s bank representative has to get involved by issuing a demand for the monies they are owed.  So does any other lien holder who has a lien against the property being sold. That often includes property taxes, so the assessor’s office has to submit a demand letter as well. At the end of the process is the signing. In Sonoma County that typically involves separate meetings with the escrow officer for buyers and sellers.

Sonoma County Notary
Sonoma County Notary

A notary to document that signatures are genuine is required for loan and other documents. Often that is the escrow officer doing notary duty, but for many transactions a traveling notary is simpler for everyone. All documents in place, money in hand, loans and commissions ready to be paid off, the buyer’s deed travels to the County Recorder where the documents are officially entered into the record and the buyer becomes owner. By my count, that’s about 30 people. Every transaction.

You may see a single agent’s face plastered on a billboard, but every property transaction is a team effort. So, thanks to Nancy, Jen, Don, Byron, Eric, Heather, Dan, and all the rest I don’t have space to name. You make my job possible…and fun.

Posted in: Buyer Guide, Real Estate, Real Estate Guides, Seller Guide

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