Balance In the Marketplace?

As the Federal Reserve continues to force the national real estate markets to normalize through its mechanism of increasing interest rates, we find that the localized nature of all real estate does not always follow suit in lock step.

According to BAREIS MLS, October’s data points indicate that Sonoma County buyers successfully contracted to purchase 303 single-family homes – 36 percent fewer than last year at this time. Property owners delivered 260 new offerings during the month – off 40 percent from last October – while buyers managed to complete purchases on 309 dwellings – 40 percent less than a year ago – showcasing the confluence of both historically low inventory levels and the impact that higher interest rates are making on buyers in the marketplace while further exemplifying the change in marketplace cadence.

With November now upon us, buyers will be surveying the 646 available homes remaining in Sonoma County – 21 percent fewer than in 2021 - along with the debut of new ones, and making determinations for themselves as to purchasing now, or not, and this will show up in a common market measure - the absorption rate. October left us with this metric reading at 48 percent in Sonoma County – essentially at the same steady level that has been in this region over the last 10 months.

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 111 new single-family offerings in the period – though still 41 percent less than a year earlier – with buyers absorbing 154 homes in consummated contracts. Sellers brought finality to 165 transactions during the period - 28 percent fewer than in 2021 - leaving the entire region with 307 homes available for buyers to peruse in November – 11 percent lower than last year at this time and still an all-time low for any October. Marin’s absorption rate ticked back up to 54 percent in October - still twice the rate of what we call “high” as this region continues to show more resilience than the greater national markets.

Napa County’s markets are dipping their toes into a “balanced” reading as of this last month. Available monthly inventory at the end October stood at 266 units – still 17 percent less than a year earlier. Sellers managed to deliver 81 new offerings to the market in the period while buyers placed 76 new deals into escrow – 39 percent fewer than last year. Home sellers closed out just 59 sales during the month allowing the absorption rate to shift lower to 22 percent – essentially confirming sellers are ceding their years long dominance and that transactions are getting back to balanced negotiations between parties.

All metrics aside, a balanced market allows more rational and equitable dealings than either side of it does. The issue we are absorbing now is change in the temperament of the buyers and their willingness to say yes to everything whereby exacting a toll on sellers by forcing them to engage in ways they have not over the preceding 10 years while relinquishing some of the equity built over that decade. The pause in runaway prices is healthy even if the values retrench modestly as you have to look at it with a longer term perspective. Buying real estate is not a consumption situation like a meal, a vacation or a computer nor should it be viewed or invested in that way.