With a sense of renewal, Spring is in the air and wounds are finally healing from the scars of the trauma dealt our region in October 2017. There has been significant progress made from then until now and this is starting to engage the remaining community that have yet to initiate a plan for moving forward into the decision-making process with what to do with the land they still own.
According to BAREIS, as February concluded, Sonoma County had exactly 442 non-commercial parcels on the open market – 46 of which were newly exposed to the market during the month. Our County saw 43 sites receive accepted offers during the period while another 38 parcels formally traded hands – at a median value of $252,000 – well above the fifteen-year running average of 20 sales per month. This indicates a strong demand for the most appropriately priced plots, though the increase in interest is overshadowed by the consistent supply of new lots being brought to the market as the chasm between sold and available properties is expected to widen as this year progresses.
Specifically, within Sonoma County, Santa Rosa’s Northeast quadrant has been the primary catalyst for the increased activity levels. The Tubbs fire has reshaped the landscape and the marketplace as we know it. The region was showcasing 179 residential lots on the open market as we wrapped up
February. New offerings from sellers accounted for 26 of those during this period with buyers promptly capturing 18 new contracts on parcels – well above the historical average of two per month. Sellers completed an additional 18 sales during the period and, since the fires, have sold a total of 359 parcels – accounting for more than half of all residential lot transactions in Sonoma County. To put this in perspective, Northwest Santa Rosa has sold a total of 131 lots since December 2017 while the greater Sonoma Valley region has seen only 38 transactions. Sellers of lots should be readying them for market by making final clearings of dead or diseased vegetation or consider holding their sites for several years, hoping that time will make them more valuable.
As the volume of offerings and transactions stack up we see measurable data points appear. In Northeast Santa Rosa, the average price paid for a lot in December was $301,000 while the median price hovered at $313,000 – median is the midpoint of all sold properties where by half sold for more while the other half sold for less. In a market as liquid as we are encountering, even though the average number of days to sell a parcel steadied at 102, the only thing keeping the dirt from transacting is the price being asked by the seller. This is a common theme in basic economics – a seller sets a price, but a buyer establishes the market value.
Annualized data gives us a solid perspective on the marketplace. It tells us that there have been significantly more sellers in the Northeast Santa Rosa markets defined as “Mark West” and “Fountaingrove” than anywhere else. This is attributable to a myriad of reasons: the cost to build in this region due to site slopes and soil conditions makes it exceptionally more expensive, the logistics for positioning labor and supplies on each lot absorb more of the total construction dollars than in Northwest Santa Rosa and the general age of the population was more senior and thus more reluctant to place the time, energy and money into rebuilding at this stage of their lives.
Along with this, as more parcels make their way to market, another metric comes into play – the elasticity of demand. This is the measure of the change in the quantity demanded or purchased in a product – vacant land in this case - in relation to its price, or required adjustment of such, so that it finds a willing and capable buyer.
Each month adds to the charted progress within our markets as we anticipate values on lots to be more closely associated with the effective price of the newly built home that rises in its place. A rule of thumb typically used by investors is that not more than 15-20 percent of the value of the total combined asset can be assigned to the underlying cost of the dirt. Thus, for a new $1,000,000 home to come to life, a builder or investor should be reluctant to pay more than $150,000 - $200,000 for the lot the home will sit on unless there cost to build is uncharacteristically below market metrics. With the rising costs of construction, these market forces may diminish the value a willing buyer may place on the parcel they are seeking – moving forward, expect lot prices for most sites to fall in line with market requirements before being transacted on.
