U.S. economic conditions are shutting the door on the red-hot residential real estate market in the North Bay, with climbing interest rates contributing to May’s double-digit percentage drop in the region’s home sales, according to the California Association of Realtors.
And this may be just the start of a changing real estate market, thanks in part to interest rates that have doubled since the start of the year.
“The industry was caught very blindsided by that, because all of the mortgage-lending industry and most economists expected mortgage rates to remain in the (3% range) all during this year,” said Nevin Miller, president and CEO of San Rafael-based Pinnacle Loans, which serves Marin, Sonoma, Napa and Solano counties, as well as Southern California. “For them to go from 3% to 6% is a shock to the market.”
The current market still favors sellers, he noted, but that doesn’t mean they aren’t reacting, even with all-time low inventory.
“Sellers who have now got a ton of equity because homes have appreciated so much are rushing to put their home on the market before the market changes, which it is doing now,” Miller said.
In the North Bay, year-over-year property sales in May were down in several counties, according to the agent association. Sonoma County home sales dropped by 22.8% to 385 homes sold; Napa County 12.1% to 102 homes; and Marin County, 10.1% to 178 homes, CAR reported. Solano County sales, however, rose 5.8% to 328 homes sold in May.
This wasn’t surprising to CAR Deputy Chief Economist Oscar Wei, who noted that Solano is the most affordable county in the Bay Area and North Bay.
Insights and cash
In Sonoma Valley, while large overbids on homes have not been unusual, with three-quarters of offers coming in all-cash, the buying frenzy reached out to traditionally more affordable areas of the county, said Duane Margreiter, sales manager for Century 21 NorthBay Alliance in Sonoma. One of his properties was a $1 million home in Windsor, where overbids had previously gone as high as $25,000 over asking, and that property sold for $75,000 over.
“We’re seeing a shift in the market,” Margreiter said. “Buyers are taking a different look. They’re realizing that they do not need to put in an offer on the first thing they see.”
While the rise in interest rates is likely to initially price out first-time homebuyers, overall it likely will result in a shift to a more balanced market, rather than a crash like in 2005 to 2012, when the Great Recession had a wave of foreclosures, Margreiter said.
Patricia Oxman, a 30-year real estate veteran and top producer for Golden Gate Sotheby’s International Realty, said the Marin County market data she tracks suggests local entry-level buyers have already pulled back so far this year, but higher-priced homes continue to be selling.
Sales of single-family homes in Marin County are down 17%, with 1,120 changing hands so far this year, compared with 1,346 in the same time frame last year. Home sales under $1 million have dropped to 72 from 145 a year ago. Sales of mid-range homes ($2 million to $4 million) moved down to 48% of all sales from 54% last year, while top-end homes (over $4 million) now make up 46% of sales, up from 34% a year ago.
“The luxury market is still strong because buyers pulled money out in anticipation of the purchase, and 28% of our sales are all cash,” Oxman said.
Gerrett Snedaker, broker and partner with Better Homes and Gardens Real Estate-Wine Country Group, said he’s seen “a decrease in multiple offers and homes selling in excess of asking prices.” The firm has multiple offices in Napa, Sonoma and Mendocino counties.
In May, 16% of homes in the three counties sold at reduced prices, and by late June that proportion is 19%, in line with the level from a year before, according to Snedaker. And the share of homes selling for over the asking price was 55% in May, 44% through late June and 52% a year before.
The changing market conditions have already started to reduce prices on listings.
Just over 9% of Sonoma County listings experienced a price cut in May, compared with 6.9% in April and 4.9% in March, Zillow reported. About the same percentage of sellers lowered their prices in neighboring Napa County, in contrast to reductions in April at 7.1% and 6.3% in March. To the west in Marin County, 6.8% of listings were lowered, versus 5.1% in April and 4.9% in March.
Much of this trend is due to “rising interest rates on the back of the incredible price appreciation in recent years,” Zillow spokesman Matt Kreamer pointed out, adding: “People are being priced out.”