Summing up 2021

Well, it is not news that the real estate market took on a life of its own over these past 20 months.  The pandemic greatly shifted many economic categories, the housing market being one of the most impacted, with the stock market running a close second.  With home values rising over 18% per year over this period due to demand and historically low interest rates, we were catapulted into a buying frenzy that would not have occurred outside of this pandemic.

But as we settle into the remaining days of 2021, the housing market has definitely shifted, or shall we say, it has settled down.  As of August, we have seen a change in the buyers.  While no longer buying in a panic or a rush from moving from San Francisco, it has become a more thoughtful market on the buying end.  More simply put, the craze of movement has definitely settled down. People are also buying in San Francisco more so now.

What this means is that our housing market will just become more realistic.  Properties highly elevated in price outside the current market trends, will most definitely sit on the market, regardless of the levels of inventory being low. This is where the needs and wants will become very apparent.

Needs vs. Wants

We need food to survive. We also need gas to fuel our vehicles, especially if we don’t own a Tesla or some other electric vehicle.  When it comes to housing, we all need a home to live in, but the price we pay for it is ultimately the buyer’s decision.  This is where the “want” comes into play.  Some people may want a bigger home or to buy their first home.  Investors may be looking to place their money.  But, it has to make some sense financially.  Especially since the dust has settled from the craze.

Reading The Market

Reading the housing market requires not just seeing that we have a low inventory of homes available.  It is also imperative to read the buying market.  Without a certain level of buyers participating in home buying, the sellers don’t sell their homes, period.  It is also highly important to watch the days on the market as well as where the properties ultimately settle out.

When markets begin to shift, watching these areas as well as the days on the market and final sales price, gives a good indication as to where the current market is trending.  When properties sit longer on the market, to the upwards of over 60 days, typically the prices need to come down in order to move as we are not lacking for buyers in Sonoma County.

Risk vs. Opportunity – Why It Is Not a Bubble

Regardless of where we have been or what shifts may be occurring, we are not in a housing bubble.  Anytime markets get crazy, the bubble topic always surfaces.  I recently listened to Catherine Wood of Ark Investments, who described the difference between our current market and 2008 as one of “risk” and the other of “opportunity”.  She describes the market we are currently in, one of risk.  This means as people are buying, the risk is that the home prices could adjust down, as housing markets do.  2008 was a market of opportunity as just about anyone with a pulse could buy a home with nothing down.  I know that sounds more risky, but the risk was clearly more on the lending side and we know where that ended up.

With home buying now, the practices are different and homeowners and investors have plenty of equity to bear any market adjustments.  You can thank the 2008 meltdown for that, which actually headed everything in a much healthier direction, financially.

How We Are Shifting

First, it should be stated that every housing market is different.  Sonoma County is different from San Francisco as Los Angeles is from Orange County.  Desirability is the first thing that drives any economic market, especially housing.

Where our housing market has settled is in the arena of reality.  Prices of $1100 per square foot is not common for Sonoma County.  It is however, more in line for San Francisco.  The only difference I see with this market is the level of new home construction that is moving a lot quicker than older homes, especially when priced competitively.  Many buyers desire a new home and with the level of rebuilds and spec homes here in Sonoma County, that has an impact on the older homes on the market.  Houses that are dated or in need of remodeling will have to adjust their price to make room for the costs to cure or remodel home. With that said, location is still and will always be one of the most important factors for home buyers. As these new builds sell off, it does make room for price adjustments for the older homes.  But we are not quite there yet, especially with over 65 active lots currently on the market.

Heading Into 2022

As we are quickly approaching 2022, it is my opinion that we will continue to see growth in our inventory.  As prices begin to level a bit, we will also see the buying market pick up.  But one has to happen before the other and that would begin with the prices of homes adjusting for some. Though we are hearing about inflation and interest rates rising, I don’t think we will see any drastic moves made by the Fed.  They are having to work to keep things stable as we move into this new phase and jetting up the interest rates too drastically would definitely impact the housing market by ultimately increasing the cost of money.

I see 2022 returning to what would be a more normal market.  As things have opened up more as well as things have settled down, I think things all over will normalize a bit.  This does not mean that our market will adjust straight across the board.  It just means anything out of line price wise, especially when checked with our “current market”, will need to adjust in order to move.

The best thing about these past months is what has shifted for Sonoma County.  This area has become more desirable to a larger range of home buyers and that will not change.  We have such a wide variety of lifestyles to offer throughout this area as well as being “wine country”, that our area will not only continue to grow, but has now become one of the most desirable places to live, north of San Francisco. Keep that positive thought as we enter into 2022, with an adapting market and continued positive growth.

Holly Young – Coldwell Banker / Santa Rosa