Sonoma County Market Update March 2023 | Where did all the move-up buyers go?

Happy March...Where did all the move-up buyers go?

We have now been in a mortgage interest rate environment over 5% for almost a year now. The higher interest rates are not effecting all parts of the market evenly. The luxury market (over $2mm) has definitely seen a slow down in demand, resulting in longer days on market. A lot of investors and second home buyers are sitting on the sidelines waiting for interest rates to go back down.

However, the starter home market (under $850k) is still very active. A huge part of the housing market is driven by demographics. We have a very large number of millennials entering their home buying and family-creation years this year and in the following few years, which will continue to drive the market. (Fun fact, the average age of a first time home buyer is 34 years old.) We also continue to see inventory remain at all time lows, which means there are just not enough homes to go around.

So with the economy slowing, why aren’t we seeing more inventory?

In business, if things get shake-y, business owners can close up shop and cut their losses. Homeowners don’t act like business owners. So even if the economy is slowing down, that doesn't mean more homes will be listed. First of all, homeowners don't sell to become homeless. And second, the events that took place in the Great Financial Crisis leading to a drop in prices were driven by forced sales, which were driven by bad loans and compounded by a lack of credit availability.

The current situation is much different. The mortgages made in the last 10+ years have been made with much tighter lending standards. Most homeowners with sub-3% fixed rate mortgages are very happy with their low monthly payments and don't have much reason to trade into a higher interest rate. A lot of the homes we have seen come on the market are people who are experiencing significant life events…death, divorce, etc. This is keeping inventory low. Seller’s are still achieving high prices compared to 2019, but they don’t have the insane amount of control and negotiation power they had a year ago.

I believe the trend of lower inventory will continue until we see interest rates come down. Several experts are predicting interest rates to come down in May. This is because we will be comparing the current inflation data to its peak last May, making this year's data look favorable. When the inflation numbers come down, they should drive interest rates down with them bringing more activity and competition to the market.

Number of Sales

Last month (February) we saw another tick up in pending sales (homes that went into escrow.) This is on par with what usually happens this time of year. The number of pending sales usually continues to go up and peaks in the summer time. This is good news and shows that number of homes sales are continuing strong.

What we didn't see was a tick up in the number of listings like we usually would in February. Listings stayed at their lowest level ever in January and February. Right now most "move up buyers" are frozen in place thanks their sub-3% interest rates.

Average Days on Market 

Days on market is an important trend to watch. Usually the faster a home sells, the greater the chances of it achieve at or over its listing price. As the days on market get longer, that usually results in more price reductions, less interest, and an over-all lower sales price. Despite our extremely low inventory, homes are taking longer to sell now compared to this time last year when interest rates were around 4%. However, when you compare days on market to pre-pandemic times, what we are seeing right now is pretty average. 

Sales Price to Listing Price Ratio

The sales price to list price ratio has continued to stay in the 90-100% range. If you look back to the pre-pandemic years this is what a "normal" market looks like. Hooray for a normal market! 

Sonoma Compared other Bay Area Counties

              Remember when I said real estate was local? Last month an article by the North Bay Business Journal perfectly proved this point. To give context, most of the Bay Area has been seeing declining real estate prices from their peak in June of 2022 due to rising interest rates. This article explained that Sonoma County was the only county with zip codes that continued to see price increases. This did not come as a surprise seeing as the work from home crowd has been flocking here from other Bay Area counties choosing Sonoma County as their new home base. Our lower prices and wonderful quality of life have made it an easy choice for many retirees or professionals that work from home. That being said, overall the average price of what sold ticked down just a bit compared to last year's red-hot February. 

Remember, every neighborhood is different. So just because the average price of what is selling went down, doesn't mean that home values across the board went down. It really means that people are choosing to buy homes in cheaper price points. If you would like a more detailed report on your specific neighborhood, please let me know. I'm happy to share more in depth info!

Interest Rates...

Considering interest rates have ping-ponged between 6.00% - 7.00% since September of 2022, nothing has really changed. Their interesting ride continues. With the news of inflation heading in the right direction, we hope to see interest rates stabilize soon. When that happens, we anticipate a huge part of the buyer pool that has been sitting on the sidelines will come back to the market.

If you're a buyer who is waiting for interest rate reprieve, I'd suggest getting your pre-approval all squared away that way you are ready to roll when you find a great house.

The interest rates above are averages as of 3/24/23 according to www.mortgagenewsdaily.com. Contact your lender to learn what you can qualify for.