As demand swells and willing sellers dissipate, this can create a drought effect within our markets and be falsely reflected as sales plummeting.
According to BAREIS MLS, July’s data points indicate that Sonoma County buyers successfully contracted to purchase 622 single-family homes. An amazing feat considering property owners only delivered 431 new listings during the month – 25 percent fewer than last July. Buyers closed on 563 sales by months end – held back purely due to a lack of sellers entering the market at a time when we typically see the greatest number of homeowners electing to list their properties.
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 frenetic pace causing available inventory to zoom off the shelves while less is being restocked, leaving just 675 single-family homes to carry over into August – 12 percent fewer available listings than a year earlier. Does this seemingly point to a market that is depleted of sellers? Voracious demand has driven prices upward and at each new high more homeowners get persuaded into the market, though with property owners refusing to be sellers it may take a lot more to cause new supply to appear and that inventory that has shown up is being acquired rapidly as evidenced by an 84 percent absorption rate.
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 California’s hottest markets for demand, Marin County, is one of the few more vociferous locations – percentagewise - than Sonoma County. More typical of what you would see during the winter holiday low, sellers introduced just 169 new single-family offerings in July – 39 percent less than a year earlier. Buyers promptly absorbed 231 homes into consummated contracts – 29 percent fewer than the previous July though only held back by the sheer lack of available homes for sale. Sellers closed out 241 transactions during the period leaving the entire region with 209 homes available for buyers to peruse in August – a far cry from what we encounter historically during the summer months. Marin’s extreme pace indicates an absorption rate of 115 percent while also surpassing last month’s all-time high with respect to its median value closing the period at $1,800,000.
Napa County’s markets are benefitting from similar trends as sellers managed to deliver just 101 new homes to market this last month – 60 percent fewer than in 2020. Buyers rushed in to grab 128 new deals while sellers closed out a remarkable 115 sales in the period – similarly, the closed sales are being hampered by an unheralded lack of available supply. This left the region with just 245 available dwellings heading into August - showcasing a 47 percent absorption rate along with median values closing the period at $925,000.
As noted in earlier columns, with these metrics persisting, we will start to see false claims of sales falling. Which is to say, fewer people want to move away from here than want to live here.