Hot North Bay real estate markets appear headed for cooling in 2022
Feverish buying of suburban San Francisco Bay Area housing that characterized the first year and a half of the coronavirus pandemic is expected to ease in 2022, with more homes on the market for longer.
Compared with what’s been happening in Sonoma, Marin and Napa counties, that would be a good thing, according to Jeff Schween, an agent with Compass in Santa Rosa and owner of a design-build company.
“We’re going to be coming out of all-time low inventories,” he said.
For those three counties, there were only 772 single-family homes on the market for sale in November, down 46% from 1,422 the same month in 2020, according to the most recent data from Bay Area Real Estate Information Services, or BAREIS. Yet last month 765 homes were sold, including 460 in Sonoma County, 201 in Marin and 104 in Napa. That resulted in months of inventory to sell — a metric of how fast homes are selling — of 1.1 months in the region, down from 1.6 months a year before.
And Schween is expecting there to be even fewer homes available to buy in the three counties come February, when sellers seasonally start considering the market.
“We will see crying about no homes on the market, and that pushes rents up on rental properties such as apartments, houses and duplexes, because incoming residents to the area have to rent for new job,” Schween said. “We don’t have new subdivisions like in the 1980s and 1990s, with hundreds units coming on the market. New inventory spurs people from existing inventory to move to a new home or be in a part of town they want to live in. New home subdivisions unlock commerce, and the worst for our economy is a lack of commerce.”
Solano County, with a number of new housing developments and the lowest prices among the counties touching San Francisco Bay, in the second half of 2020 and the first half of 2021 benefitted from a home-sales boom, largely from buyers coming from outside the market, according to David Clutts, broker associate with Country Estates Realty in Fairfield and president of the Northern Solano Association of Realtors.
“We’ve priced ourselves so high that it reduced the pool of people (to buy). That easier seller money will not be as easy in 2022,” Clutts said.
The average price of sold Solano homes increased 13.2% to $1.0 million over the 12 months ending in November and price per square foot rose 12.7% to $534, while the median price rose 17.4% to $593,000, according to the most recent data from BAREIS and the California Association of Realtors.
But the months of inventory to sell dropped 21% to 1.1 months in November from 1.4 months the previous November. That’s because the number of properties on the market last month dropped nearly 32% to 1,479, while the number sales slipped 7.4% to 1,401 and dwellings put into contract increased nearly 2% to 1,395.
Clutts expects the recent increase in the limit for nonconforming, or jumbo, loans on Solano homes by roughly $100,000 to $657,000 is expected to drive county prices higher, increasing activity for homes priced above $600,000.
Solano prices are expected to climb in the first half of 2022, particular in spring with the seasonal increase in listings, eking out growth of 6%–8% for the year, but Clutts is anticipating the volume of sales next eyar to drop by as much as 20%.
But in the second half of 2022, Clutts expects a “normalization” of the county market, as a slowdown in activity from out-of-county buyers eases appreciation that is pricing locals out of the market. And the Federal Reserve’s planned three interest rate hikes in 2022 to try to cool off inflation, are expected to ease the market, setting up an even softer real estate market in 2023.
With higher interest rates, which some real estate economists expect could result in 4% rates for mortgages, that could cause some buyers to think twice about selling or look at houses they plan to stay in for at least 10 years, Clutts said.
“They are more in love with their interest rate than they are with their house,” he said.
Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at email@example.com or 707-521-4256.