Sales Trends – Sonoma County Blog

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.

Sonoma Housing Demand Pushes Prices Higher

Full price isn’t high enough.

It’s strange to write those words after six months of free-falling home values in 2008 and four years of bumping along a fitful bottom since then.

What we are seeing both nationally and locally is that owner occupants and investors have returned to the market in large numbers. We are seeing record low residential inventories for sale and the emergence of a strong sellers’ market. For buyers, the emerging problem is that the tight inventories may persist. There’s a chance that the improving market may finally convince more sellers that now is the right time to sell, but until the listings start appearing, there are too many buyers chasing too few homes.

I did some analysis of all Sonoma County home sales for the first two months of 2013. Not surprisingly, the lower inventory has produced fewer sales than we had last year at this time. The first chart is for all residential activity, both single family homes and condos. There are three pieces of information in the chart for each month; the number of homes for sale, the number that are pended (meaning a contract is in place and all contingencies have been removed), and the number of homes sold. I know graphs are painful and you probably want to skip over it, but the charts in this post explain a lot about the real estate market, so please bear with me. Look at the light green column for January 2012. It’s the second column in from the left. The number at the top of the bar is 1098. That’s how many homes were for sale a year ago in January. Now look at the corresponding chart for January 2013. It’s the second from the right and the number of homes for sale is 592, a little more than half as many. The dark green columns for January and February of 2012 show sales of 387 and 396 homes respectively. The same months for 2013 show sales of 330 and 319 homes. It’s a significant fall off in sales, but you can’t look at the chart without noticing that there just aren’t as many homes to choose from.

The other piece of data to pay attention to is the red line running across the charts. Those are “pended” sales that show up in the sales figures, typically for the next month, but sometimes longer. They are a leading indicator of where sales are going. You can see that both January and February of 2013 show pended sales that are very strong relative to the number of homes on the market. (Please click on this or any other chart on this blog to see a larger version.)

That chart, believe it or not, has the good inventory numbers. It includes all price points including the luxury estate property in Healdsburg and Sonoma that drives the wine country lifestyle dreams of so many buyers. The battle for the first rung on the ladder of home ownership is fought at entry level pricing. I’m going to arbitrarily call Sonoma County entry level housing at up to $300,000.

Entry level sonoma county residential sales — Sonoma County Residential Sales under $300K

I prepared the same chart as above, but just for entry level housing. This is seriously scary for anyone who wants the American dream of home ownership available to all. Compare January and February of 2012 to the same months in 2013 for the For Sale and Sold columns. The light green of For Sale is almost invisible in 2013, buried behind strong sales represented in dark green. In fact, since April of 2012, the number of homes sold has outpaced the number available For Sale. The trend analysis (red line) shows the market continuing to take off in February of 2012 with more pended sales than available homes. That’s not a tight market. It’s crazy.

When buyers sense a market that isn’t slowing down to let them jump on, they only have a couple of alternatives. One is to stay on the sidelines and continue as a renter or a stuck-in-place home owner. The other is to jump in and grab what they can…paying what they have to. That’s the origin of the lead sentence where I say “Full price isn’t enough”. The final chart is an analysis of the selling price for all the homes compared to the listing price. Other terms for listing price would be full price or asking price. It’s what you see when you look at the price of a home online. What my new chart and the data behind it is telling us is that a lot of homes are selling for more than their full price. If you are planning on jumping into this market, be warned that even if you make a full price offer, there is a good chance that someone else may end up buying the home.

sonoma county residential price chart showing underbids and overbids — Sonoma County Overbids and Underbids

Reading this chart is a little different than the first two. The key element here is a horizontal line running across the chart at 0.0%. That represents the asking price for a home. Any vertical bar above that line means the average of homes sold that day was for more than the listing price. If the bar is under the zero line, people paid less than asking price. The chart starts on January 1, 2013 on the left and finishes at February 28, 2013 on the right. Again, the vertical lines represent the average of the overbids and underbids for three types of properties:

REO or bank owned properties (orange)
Short Sales where the bank must accept less than is owed on the home (green)
None which represents a traditional owner selling their home for more than the outstanding mortgage. (blue)

Take a deep breath and stay with me. This chart is going to help you think about your strategy for buying a home. Let’s start with some clear facts:

The traditional open market home sales (in blue) are typically selling for less than asking price
REO homes are typically selling for up to 5% or more over the asking price
Short sales are likely to be selling for more than asking, but not by as much as REO listings.
The pricing trend line for REO homes is climbing. Pricing designed to get multiple offers is working.

Please keep in mind that these are averages. Different neighborhoods, quality of improvements, lot size, and other factors still play important roles. Learning as much as you can about the inventory and recent trends is key to making a smart offer. Knowing whether you are looking at an REO property, a short sale, or an open market sale will help determine whether or not you will offer over the listing price or not. Knowing what has sold in that neighborhood recently will also be an important factor. Even with perfect knowledge, a great lender, a fantastic agent, and a winning smile, you can still lose out with a thoughtful offer. You may have run into a more desparate buyer who wants it more. You may be competing with an all-cash investor who is willing to pay above market prices to get another rental unit. What is guaranteed is that if you understand what the market is doing, you will be making smart offers in line with current trends. Reading this blog post has hopefully made you a smarter buyer. Putting that brain power to use on your next offer will hopefully make you a more successful one.

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 (missed the bubble) 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.

Two areas in particular are hot spots for premier property selling for over a million dollars. The greater Sonoma area, including Glen Ellen, accounted for over 80 sales in that price range last year. This area is especially attractive to buyers who are still working in San Francisco and appreciate the shorter commute from Sonoma.

Map showing distribution of luxury home sales in Healdsburg — Healdsburg Million Dollar Sale Map

Healdsburg was also a strong contender for Sonoma County luxury property transactions with 40 homes selling for more than a million dollars. In addition, Healdsburg outsold the Sonoma area with the largest number of Sonoma County residential transactions over $4,000,000. (I have linked a PDF file showing the breakdown of million dollar residential sales in Sonoma County for 2012 by area and price.)

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. The few that have been on the market with fair pricing have been quickly scooped up by buyers represented by savvy agents. In the most dramatic example of that, a Healdsburg house listed at over $6,000,000 sold the first day it was on the market last year.

The shortage of wonderful, authentic 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 your own. Here’s an estate grade parcel in Healdsburg. Here’s a 201 acre parcel that would fit five homes for an estate compound.

Sonoma Homes over $1,000,000

Healdsburg Homes over $1,000,000

Sonoma County Million Dollar Lots and Land

Sonoma Real Estate – Inventory Shortage

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.

Sonoma County Real Estate Shortage — Monthly Supply of Sonoma County homes for sale

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.

Vanishing REO and Short Sales

Prices, bubbles, and timing

Sonoma Housing Demand Pushes Prices Higher

Luxury Homes in Sonoma County

Sonoma Real Estate – Inventory Shortage

Property Search

Transaction Guide

Home Buyer’s Guide

Recent Posts

Sonoma.net Sites