Bad News Equals Better Rates
The public state of mind when it comes to housing relates to each person’s career or income security, the current interest rates that a mortgage can be acquired at, and the supply of homes available in the marketplace. Negative economic news, geopolitical stability/instability and job losses are good news for those in a secure position looking to acquire real estate or any other hard asset for that matter as they definitively create a lower interest rate environment for home shoppers to take advantage of.
According to Compass, as Augusts’ data has now been finalized, we find our markets reporting a mixed bag of results depending on the price niche of the home in question. The data points indicate that Sonoma County buyers successfully entered agreements to another purchase 388 single-family homes in August – 30 percent ahead of last year at this time. Property owners delivered 294 new offerings during the month – off 23 percent from 2023 along with being another new historical low for the period – while buyers managed to complete purchases on 370 dwellings – eight percent greater than the 344 units that transferred ownership last year at this time.
With September in play now, buyers will be surveying the 893 available homes remaining in Sonoma County – a significant 27 percent bounce above the 30+year low we experienced last year at this time, though a far cry from nearly 20 years ago when we were trading out more than twice this volume of sales each month. As the year continues to take shape, buyers will be making determinations on these offerings, along with the debut of new ones, as to purchasing now, or not, and this will show up in a common market measure - the absorption rate. August’s activity left us with a heightened reading of 42 percent highlighting that buyers are still working harder than historically normal to find the home they want - at an interest rate they like – and remain more encouraged this month to follow through on purchase they line up with interest rates on loans now in the 5.5-6.25 percent range once again, depending on the loan product selected.
The absorption rate is calculated by dividing the total number of homes sold in a month by the total number of homes available for sale at the end of the same month. A high absorption rate – 20 percent and above – indicates that the supply of available homes will shrink, thereby increasing the odds that an owner will sell a property in a shorter period. Conversely, an absorption rate below 15 percent is indicative of a buyer’s market, meaning homes are selling more slowly.
Marin property owners introduced 119 new single-family offerings this August – another all-time monthly low and 41 percent less than a year earlier. These woefully lacking inventory levels may continue to create a more competitive environment for both new and existing buyers in pursuit of making Marin their home this year. Buyers absorbed 172 homes in consummated contracts while sellers completed sales on 142 dwellings during the period – just 2 more than last year - leaving the entire region with 285 dwellings available for buyers to peruse in September. Marin’s absorption rate for the month relinquished some momentum to close the period at 50 percent – which is still one of the highest readings in the seven Bay Area counties.
A slightly different story to the east, Napa County’s markets are showcasing they are in balance after teetering near there over the prior twelve months. August brought the release of 95 new offerings to the marketplace – 21 percent fewer than last year’s new listings – leaving 372 homes available for buyers to peruse in September. Buyers placed 78 new deals into escrow – eight more than last year – while closed transactions tipped the scales at 72 during the month – just five off the pace we saw a year ago. The combination of new releases coupled with buyer activity has allowed the absorption rate to drop to 19 percent – demonstrating that this market is balanced for the time being thereby acknowledging that both buyers and sellers have to find a way to meet each other without ego now that the field of play has adjusted.
On main street, we as practitioners, are experiencing much higher call flow and requests from buyers than over the prior few months – which is as expected. The remaining question will be at what rate do these new entrants into the marketplace take the next step into ownership? There are heightened expectations by economists that they expect this to be an unusually busy autumn when it comes to transaction levels…time will tell!
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