Buyers React to Lower Interest Rates

Buyers React to Lower Interest Rates

With the volume of sales within the real estate segment of our national, regional and local markets stalling at 30-year lows, buyers are initiating a more resounding move to get back into purchasing homes.

According to BAREIS MLS, with September’s data now being tabulated, 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 purchase 374 single-family homes in September – 14 percent ahead of last year at this time. Property owners delivered 295 new offerings during the month – off 15 percent from 2023 along with being another new historical low for the period – while buyers managed to complete purchases on 327 dwellings – 13 percent greater than the 289 units that transferred ownership last year at this time.

With October in play now, buyers will be surveying the 897 available homes remaining in Sonoma County – a significant 23 percent bounce above the 30+year low we experienced last year at this time, though still very different 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. September’s activity left us with a heightened reading of 37 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 purchases they line up, even with interest rates on loans coming off their lows since the Federal Reserve last rate decrease, and now in the 6-6.75 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 175 new single-family offerings this September – another all-time monthly low and 10 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 198 homes in consummated contracts while sellers completed sales on 149 dwellings during the period – just 2 more than last year - leaving the entire region with 391 dwellings available for buyers to peruse in October. Marin’s absorption rate for the month relinquished some momentum to close the period at 38 percent – more in line with neighboring markets.

A slightly different story to the east, Napa County’s markets remain balanced for the fourth month in a row. September brought the release of 103 new offerings to the marketplace – just 1 unit less than last year – leaving 397 homes available for buyers to peruse this October. Buyers placed 75 new deals into escrow – nine fewer than last year – while closed transactions tipped the scales at 73 during the month – 12 percent more closings than this same period a year ago. The combination of new releases coupled with buyer activity has allowed the absorption rate to steady at 19 percent – demonstrating that this market is stabilizing in balance 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.

Real estate markets are extensively influenced by interest rates, the supply of available homes and buyers’ sentiment or confidence. When these things are in concert with a rhythm our markets can have an incredible cadence that leads to long cycles of growth. If they are not, then our markets exhibit the nature they have had over the prior 24 months. The good news is that you can feel the change happening as these highly influential ingredients work to establish a new cycle once more and this should start to show up in our data as we roll into next Spring.