Have Our Regional Markets Made a Turn?

There is a palpable change in temperament on the streets since the turn of the new year. Yes, even with the daunting weather likely dampening even broader demands from buyers while keeping would be sellers on the sidelines.

According to BAREIS MLS, December’s data points indicate that Sonoma County buyers successfully contracted to purchase 192 single-family homes – 26 percent fewer than the prior December. Property owners delivered just 84 new offerings during the month – off 62 percent from a year earlier and another new all-time low infusion of inventory for any month. Buyers managed to complete purchases on 225 dwellings – 46 percent less than a year ago – echoing a traditional cadence for our Winter-time markets.

With January now upon us, buyers will be surveying the 402 available homes remaining in Sonoma County – 20 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. December left us with this metric reading at 56 percent in Sonoma County – a nudge higher than the preceding three months – which may be the market telling us that buyers are back with new demands while sellers are still slumbering or are reticent to sell homes they hold with ultra-low mortgage rates, rather choosing to retain for the long term instead.

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 13 new single-family offerings last month – 86 percent less than a year earlier – with buyers absorbing 57 homes in consummated contracts. Sellers brought finality to 105 transactions during the period – 33 percent fewer than in 2021 - leaving the entire region with only 126 homes available for buyers to peruse in January – 48 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 83 percent in December – denoting that this market is replete with buyers interest while lacking any sellers looking to participate. If this trend persists then this market may see actual price increases rather than what buyers are hoping for, a sell-off.

Napa County’s markets are following suit with those above just in a lagging fashion as they move away from balance towards a stronger “seller’s market” reading. December witnessed the release of just 23 new offerings to the marketplace – 47 percent less than twelve months earlier as well as being another all-time low – leaving inventory levels in the shallows with only 174 homes for buyers to peruse in January. Buyers placed 41 new deals into escrow – 43 percent fewer than last year – while closed transactions tipped the scales at 62 during the month allowing the absorption rate to claw its way up to 35 percent.

It seems most are glad to be past this last year where buyers took punch after punch from the Federal Reserve. The rapid escalation of mortgage costs also walloped sellers into returning about 10 percent of their prior gains from the highs obtained in May. All this typically would have taken one to two years to transpire but we live in times were most everything has experienced the acceleration of its typical cycles. Buyers have re-calibrated, and sellers have come to the realization that there profits have been reduced and the next question is, where does it go from here? As markets struggle with historically low levels of inventory, it is hard to imagine that without a robustly abundant new supply of homes for sale that we could experience both a bottoming out of values followed by a rebound in prices, so don’t sleep on this market or you will miss it.