California outdoes most the world for its volume of billionaires with FORBES reporting as recently as this March that there were 144 in the sunshine state. There are only two other countries in the world that would outrank our favored state – The United States is first with 585 billionaires, inclusive of California, with China tracking closely behind as its’ list of billionaires jumped to 476 this year. While those represent massive amounts of concentrated wealth, let’s remember that our great state is also home to just over 885,000 millionaires as well – the most of any state in the union. As their wealth has been amassed in numerous different ways one of the most common contributing factors is real estate ownership. A home, especially in a region like ours, typically functions as not only shelter but as an avenue for you to build wealth, both emotionally and financially.
We commonly refer to markets in their entirety when reviewing the conditions prevalent and often forget there are segments or niches of the markets that function differently than the whole. Today’s million-dollar homes, at least in California, are not filled with movie stars and wall street mavens, nor are they adorned with gold plated chandeliers or flanked by tennis courts and Bentley filled garages. They are occupied by hardworking people trying to enjoy life before it passes them by. To qualify as “affordable luxury” in Sonoma County, your home would be valued from as little a million dollars to upwards of $2.5 million.
Sonoma County, with a population base in excess of 500,000 residents, saw last month close with a 14 percent increase in the availability of million-dollar homes from the prior November. According to BAREIS MLS, Sonoma County finished this November with 182 homes in the $1-2.5 million range available for sale. During this same month buyers negotiated to purchase 49 new homes – 35 percent less than a year ago - keep in mind that our county also lost nearly 3,000 homes in this value range during the firestorms of 2017. Purchasers also witnessed 42 new properties making their market debut while sellers concluded the sale of 36 residences thereby giving rise to an absorption rate of 20 percent. The affordable luxury segment of the market has seen this metric fluctuate between 20 - 47 percent over the prior 12 months, meaning the markets are generally favoring sellers while being tempted towards balance occasionally.
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 rapidly, thereby increasing the odds that an owner will sell a property in a shorter period of time. Conversely, an absorption rate below 15 percent is indicative of a buyer’s market, meaning homes are selling more slowly.
This segment of the market typically sees a higher price paid per square foot of home than the sub-million dollar market as the homes tend to be more embellished with features like pools, large yards or acreage, views and uniformly more desirable and expensive interior finishes. In Sonoma County, as November concluded, the average price per square foot was $545 in this premium market while the balance of the county reported values at $386 per square foot – this represents a 41 percent premium that buyers are willing to pay in order to obtain the accoutrements mentioned above rather than what comprises the underlying values of homes priced below $1 million.
As we accumulate wealth, we find what use to seem like so much actually feels more commonplace. Our region as well as our state have prospered better than most over the decades and this has led to the marketplace as we know it today - where millionaires abound – though seemingly no different than ourselves.