2022 was a wild year for real estate. While the first half was red hot, we saw a significant slow down in the number of sales in the second half due to the fastest rise in mortgage rates in history. This removed a lot of the flippers, investors and second home buyers from the real estate market. While it is difficult to navigate affordability after such an intense interest rate shock, its nice to see more balance between buyers and sellers.

Going into 2023, I'd like to remind everyone that real estate is local. Meaning that home prices in one county can drop, while another neighboring county can thrive at the same time. This is why I discourage getting your real estate news from national sources. I am here to be your "boots on ground" perspective, touring homes and gathering buyer and seller info on a daily basis.

Last Thursday, the inflation data for December was released and it looks like the interest rate hikes are having a positive impact on inflation. This is good for the economic outlook and fares well for the Fed's target of achieving a "soft landing" without putting the country in a deep recession. The jobs data is also holding up well, further supporting the prediction that we will not see a flood of homes come onto the market in 2023. Most homeowners have locked in a 3% or below interest rates and will not give them up unless forced to by something such as a job loss.

Number of Sales

In December, the amount of transactions ticked back down to around 200 sales per month (the red line on the green chart above.) If you look at previous Decembers, it is almost in line with the seasonal path sales would usually follow before the pandemic boom took place. The difference this time around is that the number of homes on the market continues to set record lows. For our market to truly find balance we need to bring the number of homes on the market back to 2017-2019 levels.

Average Sold Price

In December of 2021, the average sold price (red line above) in Sonoma County was $926,000.In December of 2022, the average sold price was $950,000, up by 2.6%.

Housing Inventory

Supply and demand are both key factors in determining home prices. The lack of inventory is what is keeping our prices stable, despite the shock in interest rates. We ended 2022 with extremely low inventory, below 2 months. This means that if no homes were to come on the market, everything would be sold in less than 2 months. Economists usually consider 4 to 6 months a balanced market. We anticipate both supply and demand to rise as we inch closer to spring and nicer weather.

Average Days on Market

Longer days on market (DOM) often results in lower sales prices. Before the Pandemic, Sonoma County's average DOM fluctuated based on the season and was usually anywhere between 50-85 days. During the Pandemic, DOM dropped to its lowest level of around 30 days. In December of 2022, we ended the year right around 55 days on market which means we are almost back to a balanced market.

Selling Price to Listing Price Ratio

As you can see (green line) the sales price to list price ratio has gone down quite a bit. Gone are the days where buyers have to bid $100k over ask to get the home they wanted......Hallelujah!

In Conclusion....

Sonoma County real estate is holding up quite well, despite the interest rate volatility. Some price points are selling better than others. The $650k-$800k (entry level) range, if move-in ready and priced correctly, are selling quickly. The $1.5mm+ range is taking longer to move. This is due to the fact that a lot of second home or move-up buyers are on the fence right now. I predict that growth will be very moderate if interest rates stay elevated. If interest rates go down under 5.5%, I think we will see a substantial increase in demand.

While I believe we will have more homes on the market come Summer, I do not think inventory will reach 2019 levels due to homeowners wanting to keep there sub-3% interest rates. Therefore the shortage of supply will keep prices from going down. Also, Sonoma is one of the most affordable counties in all of the Bay Area. I believe we will continue to benefit from two trends we saw take off during the pandemic. One being seniors retiring early and moving to lower cost areas, and two, the work from home crowd moving to lower cost areas that allow them to still go into the office 1-2 days per week. I believe that big, expensive cities, like San Francisco will continue to see outward migration. Sonoma County also offers the benefits of great weather, outdoor activities and a great quality of life.

If you would like a more detailed report on your specific neighborhood, please let me know. I'm happy to share more info! Email “Neighborhood Update” with your home address to nicola@vanguardsonoma.com

Brought to you by:

Nicola Roualdes, Realtor

Vanguard Properties

DRE302023814

707-480-2672

nicola.roualdes@gmail.com