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Report: North Bay home market slows as buyers ‘weary’

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Market movement

Total homes and condos sold

January–September 2016 and 2015

Marin: 1,928, down 15% from 2,264

Sonoma: 3,953, down 5.3% from 4,156

Napa: 1,242, down 9.6% from 1,123

Average price per square foot

January–September 2016 and 2015

Marin: $662, up 3% from $642

Sonoma: $381, up 4.9% from $364

Napa: $483, up 19% from $391

Median price

Sept., 30, 2016 and 2015

Marin: $1,014,817, up 9% from $930,786

Sonoma: $545,000, up 9.0% from $500,000

Napa: $629,000, up 1.75% from $618,000

Average days on market (DOM)

January–September 2016 and 2015

Marin: 49, down 9% from 54

Sonoma: 62, down 1.5% from 63

Napa: 89, down 4% from 85.5

Source: BAREIS (Bay Area Real Estate Information Services) and NorCal MLS data compiled by Terra Firma Global Partners

The residential real estate market in Marin, Napa and Sonoma counties is decelerating and showing signs of fatigue after five consecutive years of growth, according to a new survey of market data.

Using the most common metrics to measure the markets, single-family home and condominium sales in the three North Bay counties seem to have plateaued, and the forecast for 2017 is for home and condo sales to remain flat with a chance to actually decline in some micromarkets, according to Terra Firma Global Partners, a residential real estate services firm with nine North Bay offices. During the first nine months of this year, 15 percent fewer homes and condos traded ownership in Marin County, 5.3 percent fewer in Sonoma and 9.6 percent fewer sales occurred in Napa, compared with the first nine months of last year.

Sales velocity is clearly down in all three counties and for a variety of reasons, some of which are true for all the counties in the survey. The common theme relates to supply and demand. Limited supply in high-demand markets is driving up pricing in all three counties, but particularly in Marin and Sonoma County. There, the median price of sold homes increased 9 percent during the first nine months of 2016 from the same months in 2015. In Napa County, the median home and condo sale price increased 1.75 percent during the first nine months this year.

The median sale price means that half the homes sold above the median figure and half below the median figure.

Lack of inventory is an issue for these North Bay counties. Marin had only 2.5 months of supply— homes and condos listed for sale — as of Sept. 30 this year; Sonoma, 1.8 months; and Napa, 2.85 months, according to data compiled from BAREIS (Bay Area Real Estate Information Services) and NorCal MLS. The data was compiled and analyzed by Terra Firma Global Partners senior associates Jaime Pera in Marin, Trish McLean, CRS, for Sonoma and Ellen Politz for Napa.

The average price per square foot increased nominally in Marin and Sonoma counties for the reporting periods. That’s largely because home prices have been rising since 2011 with the biggest spikes coming in 2014 and 2015. There has been little room left for big price increases for much of this year, at least in Marin and Sonoma, which is another sign of a decelerating market. In Marin, the price per square foot increased 3 percent this year through Sept. 30 to $662, compared with $642 a year before. Sonoma’s price per foot was $381, up 4.9 percent from $364. Napa County’s price shot up 19 percent to $483 from $391.

Days on the market, or DOM, is an imperfect measurement, because it is reported differently by all sales agents in the industry. Yet it is still a good indicator as to which direction the markets are heading. DOM in Marin declined 9 percent in the first three quarters of this year and 1.5 percent in Sonoma yet increased 4 percent in Napa County.

The 9 percent median-price increase in Marin combined with the shortened DOM has taken the county’s housing market to unprecedented heights. That suggests the question: How much higher can it go, if at all? The relatively flat DOM in Sonoma County and modest increase in Napa County could mean the markets have stabilized there.

Market movement

Total homes and condos sold

January–September 2016 and 2015

Marin: 1,928, down 15% from 2,264

Sonoma: 3,953, down 5.3% from 4,156

Napa: 1,242, down 9.6% from 1,123

Average price per square foot

January–September 2016 and 2015

Marin: $662, up 3% from $642

Sonoma: $381, up 4.9% from $364

Napa: $483, up 19% from $391

Median price

Sept., 30, 2016 and 2015

Marin: $1,014,817, up 9% from $930,786

Sonoma: $545,000, up 9.0% from $500,000

Napa: $629,000, up 1.75% from $618,000

Average days on market (DOM)

January–September 2016 and 2015

Marin: 49, down 9% from 54

Sonoma: 62, down 1.5% from 63

Napa: 89, down 4% from 85.5

Source: BAREIS (Bay Area Real Estate Information Services) and NorCal MLS data compiled by Terra Firma Global Partners

As markets go, Marin home sales trends typically lag those in San Francisco, while Sonoma’s follows Marin’s, as Napa’s does Sonoma’s.

SHIFTING MARKETS

In Sonoma County, there are more price adjustments and negotiations for repairs, according to McLean.

“Repairs and repair credits are hard to quantify, but it is an indicator of a softening market, or at least movement toward a more level market,” she said. “While this is one indicator of a stabilizing market, we are still seeing strong competition among buyers for available homes.”

She noted interesting increase in agents reporting “multiple offers” in the MLS. That’s isn’t a required field in the database, so there may be more sales getting multiple offers than are being reported, but at least that many are getting more than one purchase offer, McLean said. For example, 1,438 Sonoma County homes sold with multiple offers this year through Sept. 30, up 7 percent from 1,335 during the same period of 2015.

Yet asking rates for homes have not lowered widely in Marin County, according to Pera. The lower end and middle part of the market are shrinking, while the high end is growing, he said. Based on homes and condos listed for sale, there were 163 homes on the market priced below $1 million on Sept. 30, down 16 percent from a year before. There were 252 homes for sale priced below $1.5 million, 11 percent fewer. Yet 32 percent of Marin homes for sale were priced at $2 million or more at the close of the third quarter this year, up 7 percent from a year before.

Fewer homes to sell has been the case for years, according to McLean.

“[W]e’d have to go back to 2011 to find more than two months of inventory … indicating that, at least for now, under two months of inventory is the new normal,” he said.

The lack of inventory results from broader ownership with lower turnover, Politz wrote in the market report. She cited a California Association of Realtors report that homeowners now are staying in their homes for an average of 10 years, up from five to seven years.

“Marriage is down, and the millennials aren’t pursuing the American Dream of getting married, buying homes and having kids the way previous generations have,” Politz wrote. “Instead, they are looking to experience life and travel. So housing is not turning over at the same rate, as the households are not changing as they once did.”

Mortgage rates are likely to rise, making it harder for first-time buyers and move-up buyers to afford to buy their first homes or to trade up. With real wage increases occurring in the U.S. following regular monthly gains in employment, the Federal Reserve appears poised to increase interest rates by a quarter point when it meets in December, and Fed bankers have publicly stated that another rate increase is likely in the first half of 2017.

THE FEAR FACTOR

Fear is affecting how many homes are coming on the market, McLean wrote.

Sellers “are concerned that they won’t be able to find a replacement property so they don’t want to sell their home,” she wrote.

Less inventory is concerning to those wanting to downsize, Pera wrote.

“[T]here are a lot of sellers on the fence about downsizing, not knowing where they are going to go plus as a general rule they have fear about downsizing and making a mistake,” he wrote.

LOOKING AHEAD

Higher borrowing costs are nearly a certainty and “could feel like a double whammy,” Politz wrote. That’s because borrowing rates actually declined by nearly 50 basis points in the 12 months ending in September. The 30-year fixed-rate mortgage average rate in the U.S. had fallen to 3.45 percent by Sept. 30, down from 3.9 percent a year before, according to data compiled by Freddie Mac and reported by the St. Louis Federal Reserve.

“Assuming that rates go up, we will only be moving from super low to low, historically speaking,” Politz wrote

The “silver lining” in the shifting market is that moveup and movedown opportunities are gaining strength as more agents are willing to broker deals between parties involving contingencies for selling or buying property, McLean wrote.

“I just closed two transactions for a client who was doing a moveup purchase,” she wrote. “They were concerned about selling their house and ending up homeless. We got their home ‘ready’ to sell — pest inspection, cleaning, professional photography, etc. — so that we could take action the moment they found a house they wanted.”

She found a house that had been on the market for two weeks.

“That seller was willing to accept our full price offer and give us time to find a buyer for our house, largely because they also needed time to find a house to move to!” McLean wrote.

Buyer and seller in that deal had the same challenge, wanting to move and needing someone who would be understanding of the needed “daisy chain of escrows,” McLean wrote.

Over the last five years, the housing market increases has been at a rate that significantly outpaces income growth, Politz wrote.

“In 2017, with the forecasted increasing interest-rate environment in 2017, simple economics tell us housing prices have to respond by softening to absorb the rate increases,” she wrote. “Well-priced, updated homes will continue to be highly sought after, as buyers generally are willing to pay more for them, rather than fix up a property themselves. Today’s buyers are weary that we have reached new heights in the real estate market, and they are watching and waiting to see if things hold or fold.”

2017 could be a good year to start “taking some chips off the table,” particularly if the goal is to downsize in the next couple of years, according to Pera. Next year could be like this year, with relatively low levels of inventory, a properties that are priced correctly, updated and in the right neighborhoods will sell quickly with multiple offers, he wrote.

“Homes that are overpriced with inflexible sellers will sit and likely end up selling for less than if they had been priced correctly in the first place,” Pera wrote.

He expects prices to continue to rise but at a slower pace than this year, as buyers start to resist price increases.

“Downsizers will continue to ponder the question: Where do I move to?” Pera wrote. “When they finally figure this out, we will have more inventory. If they wait too long and sell during a period of rising interest rates, slowing sales and growing inventory, they will pay the price for having waited too long to make a decision.”

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