Have Interest Rates Peaked?

Within the North Bay region, we have seen median sold values in submarkets retreat between 5 – 20 percent since their peak in the Spring, and while having been on an upwards swing for the last decade this has to be taken into perspective as being healthy.

According to BAREIS MLS, November’s data points indicate that Sonoma County buyers successfully contracted to purchase 268 single-family homes – 33 percent fewer than last year at this time. Property owners delivered 199 new offerings during the month – off 28 percent from last November and a new all-time low infusion of inventory. Buyers managed to complete purchases on 279 dwellings – 42 percent less than a year ago – echoing a traditional cadence for our Winter-time markets.

With December now upon us, buyers will be surveying the 557 available homes remaining in Sonoma County – 12 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. November left us with this metric reading at 50 percent in Sonoma County – essentially at the same steady level that has been in this region over the last 11 months – though possibly foreboding of a new wrinkle of concern with regards to an inventory constricted marketplace in 2023.

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 just 51 new single-family offerings last month – 61 percent less than a year earlier – with buyers absorbing 136 homes in consummated contracts. Sellers brought finality to 141 transactions during the period - 32 percent fewer than in 2021 - leaving the entire region with 212 homes available for buyers to peruse in December – 22 percent lower than last year at this time along with being another new all-time low inventory mark. Marin’s absorption rate ticked even higher to 66 percent in November – still more than thrice the rate of what we call “high” as this region continues to show more resilience than the greater national markets.

Napa County’s markets – having dipped their toes into a balanced reading last month – have shifted slightly towards seller control once again with limited inventory levels being the primary catalyst for this as available monthly inventory stood at 234 units by months end – still 10 percent less than a year earlier. Sellers managed to deliver merely 46 new offerings to the market in the period while buyers placed 66 new deals into escrow – 35 percent fewer than last year – and closed transactions tipped the scales at 70 during the month allowing the absorption rate to claw its way up to 30.

Bond markets telegraph where interest rates may be heading and, at present, they indicate that we may have seen the peak of home loan rates. Not to say we will not find ourselves in a trading range over the next year while we expect conflicting economic data to continue to weigh on the direction of the cost of ownership. This may greenlight buyers once again as we exit the holiday market to move with greater conviction and less of a wait and see demeanor that has been with us over the prior six months. Which means our markets will be inherently focused on what type of inventory level of homes show up at any given time to push the direction of prices relative to the collective active buyer demands. Grab some holiday cheer, bask in the time at hand and reenergize for the market ahead.