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‘Deurbanizing’ of Bay Area during the pandemic shocks North Bay housing markets

The Year of COVID-19

This story is part of a series that looks at the economic impact of the coronavirus pandemic since March 2020 and how North Bay businesses are recovering.

San Francisco Bay Area residents who can work remotely have been scooping up North Bay homes during the pandemic, driving up prices for some housing types and also affecting pricing for office space throughout the region.

Local housing markets have been greatly impacted by the “deurbanization movement” where homeowners are moving from denser, higher-cost urban areas of the Bay Area to its suburban and rural areas, according to Jeff Schween, a Compass real estate agent as well as a Sonoma County homebuilder.

“They can live close to the Bay Area but don’t have to live in San Francisco, Oakland, Santa Clara or Fremont, and they have been talking for years about going to Wine Country or Monterey or Tahoe for the weekend,” he said. “We’ve seen people put their money where their hearts are.”

And coming off of sales of homes elsewhere for a few million dollars, they often have buying power in North Bay markets, where median prices are hundreds of thousands of dollars lower, Schween said.

Interest in North Bay markets is outstripping the number of listings available. That’s represented by the absorption rate, which for housing is the number of homes sold in a given month divided by the number of dwellings available for sale at the end of the month. A high absorption rate — over 20% — suggests a seller’s market, while a rate below 15% points to a buyer’s market.

Here’s how hot the North Bay housing markets have become in the past 12 months: Sonoma County’s absorption rate was 63% in February, while Marin’s was 97% and even reached 102% in January, meaning more homes had to be brought on the market to satisfy demand. Napa’s absorption rate in February was 40%.

“Sellers have to be wined and dined out of their houses,” Schween said. “We’ve seen this happen before, but not to this degree.”

But some new North Bay homeowners also are holding onto their original homes closer to their employers, he said.

“It may be a teeter-totter, so they can have a country place where they like to live and an urban place to pop into a couple days a week,” Schween said. “Interest rates have gotten so low that to control both assets may be feasible.”

While not as hot as the Marin, Sonoma and Napa markets, homes are moving quickly in Solano County. The Solano housing on the market has been dwindling in recent months, according to Renee Marie Jordan, a third-generation real estate broker in the county. Inventory is down over 40% from this same time last year, but properties sold is up 22%. That left only 1.3 months of inventory in February, half the 2.6 months of inventory a year before.

“People are removing all contingencies for sale — even inspections,” said Jordan, who runs Jordan Real Estate Group–RE/Max Gold in Benicia. “I’ve never seen as many cash buyers in this market.”

Companies shift of their employees to remote work in the pandemic has caused a massive influx of buyers into Solano from the Bay Area, Jordan said.

“Many people, renters and owners of property, do not have to live so close to where they work,” she said.

Houses are being sold in record low days on market, tens of thousands over the list price, and buyers are removing contingencies, paying over appraised value, and also often times all in cash.

“It has been increasingly difficult to get in contract on a home if you aren’t willing to remove contingencies and don’t have money to pay over appraised value,” Jordan said. She said one of her clients lost in a bidding war on a home that had been appraised at $625,000 but sold for over $700,000 with no contingencies.

There are at least six new-construction communities that are in the process of development across Solano County. But many of these homes are expected to list starting at $550,000, which because of the Solano market’s loan limit of $550,000 is resulting in down payments of 5% to 10%, she said.

Cash buyers are coming to Solano from Contra Costa County and San Francisco, according to Jordan. But other parts of the market continue to be fueled by Fed actions to buoy the economy through the pandemic.

“The market has been so strong because of low interest rates,” Jordan said. “As soon as we see interest rates rise, we’ll be in for a surprise.”

But such a significant rate rise may be further toward the horizon than had been expected in recent months, based on recent movements in Treasury bonds closely linked to those rates and the latest prognostication from the Federal Reserve.

Average mortgage interest rates have been steadily climbing since July amid fears in financial markets of inflation as the national economy appears poised to roar back from its early-pandemic retrenchment. On Wednesday, the Federal Reserve announced its expectations that it won’t have to move its benchmark rate from near zero until 2023 to temper economic expansion.

And recently revised economic forecasts of stronger growth in gross domestic product this year, of 7% or better, sent yields for the 10-year Treasury note, a key metric for mortgage rates, to 1.64% Wednesday, up from 1% at the beginning of this year.

While there are fears that this rapid rise in demand for housing and pricing is creating another housing bubble like the one in the late 2000s that led to the global financial crisis, there are three factors that suggest the opposite will happen this time, according to the Wall Street Journal. This time, mortgage standards are much tighter, and buyers have strong credit histories. Also, the housing supply is extremely low, compared with demand, and that scarcity allows any homeowners who are underwater on their mortgages to quickly sell.

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 jquackenbush@busjrnl.com or 707-521-4256.

The Year of COVID-19

This story is part of a series that looks at the economic impact of the coronavirus pandemic since March 2020 and how North Bay businesses are recovering.

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