Shrinking Inventory...more to it than just seasonality

Shrinking Inventory…More to it Than Just Seasonality

As new construction hits roadblocks one after the other due to governmental red tape and supply chain woes we are also finding that - just maybe - we have exhausted the intentional sellers in our marketplace.

According to BAREIS MLS, October’s data points indicate that Sonoma County buyers successfully contracted to purchase another 456 single-family homes – 10 percent more than the frenetic pace we were experiencing just a year earlier. With property owners only delivering 319 new listings during the month – 40 percent fewer than last October – and buyers closing on 477 sales by months end, deals are truly being held back due to the lack of sellers entering the market.

The compression within our markets is easily understood by realizing that the spike in buyer demands coupled with reluctant sellers over time creates a chasm that inevitably forces prices higher to tempt sellers to market. This prolonged immense activity has created a hurried pace causing available inventory to fly off the shelves while less is being restocked, leaving just 559 single-family homes to carry over into November – compared to 713 units during this same period last year - and with the anticipation of fewer homes debuting in the market each month from now through January this could further exacerbate current conditions especially considering the current absorption rate of 85 percent.

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. Conversely, an absorption rate below 15 percent is indicative of a buyer’s market, meaning homes are selling more slowly.

One of smallest of the seven Bay Area Counties, Marin, is one of the few hotter locations - at least on a percentage basis - than Sonoma County. More typical of what you would see during the winter holiday low, sellers introduced just 133 new single-family offerings in October – 52 percent less than a year earlier. Buyers promptly absorbed 191 homes into consummated contracts while sellers closed out 217 transactions during the period leaving the entire region with 190 homes available for buyers to peruse in November – 43 percent less than just twelve months ago. Marin’s pace highlights one of the Bay Area’s busiest markets with the absorption rate now at 114 percent.

Napa County’s markets are following suit with available monthly inventory closing out October at 214 units – 20 Percent less than this same time last year. Sellers managed to deliver just 84 new homes to market this last month – the fewest of any month since last December - while buyers placed 119 new deals into escrow. Home sellers closed out another 105 sales in the period establishing a 49 percent absorption rate.

Will the typical lows of inventory we see from now through January be an indicator of what’s to come in 2022 or will more sellers be drawn into the market to satiate demand enough to hold back rampant price acceleration? This question always plagues our minds during the last quarter of each year…stay tuned for the results.