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.


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