The truth about the real estate market in your neighborhood.
A German friend of mine once said Americans buy houses like they buy shoes: When we outgrow a house or it goes out of fashion, we upgrade. In Germany, he continued, you buy a house once, and it stays in the family long after you’re gone.
An exaggeration, perhaps. But the point is supported by industry statistics, which suggest the average American will buy three to five homes in his or her lifetime. If one of your purchases was made in the last couple of years, you’ve no doubt experienced some anxiety about what’s going on in the resale market, where it can be difficult to separate the hype and hearsay from reality.
Every week, it seems, the real estate market makes headlines. We’ve been inundated with the national plight: falling home prices, slowing sales, nervous sellers and wary buyers. We hear the doom-and-gloom national reports and the alarming stories about rapidly declining home prices and the surge of foreclosures across the country. And while there are occasional bursts of light in the story (new home sales jumped in April!) they’re usually outweighed by darkness (desperate builders forced to slash prices!).
We’re all too aware of the dreary national trends. But what about California?
The California Association of Realtors reports that home sales dropped 23 percent in 2006 and the median home price increased seven percent. Interesting…
But then we hear from a local source that home prices fell in Sonoma County in 2006. OK…
And then we hear that the median home price in Marin County recently reached an all-time high of $1 million.
Huh? What’s going on here?
Obviously, when it comes to the real estate market, one size doesn’t fit all. National statistics—even statewide statistics—serve a purpose, but they don’t really let us know what we want to know: what’s the market doing here at home, in the North Bay? It turns out even that question is too broad, since each county in the North Bay has its own unique trends, and even within each county, some areas are hot while others are suffering.
Aldo Congi, vice president and managing broker of McGuire Real Estate’s downtown office in San Francisco, agrees. “Asking, ‘How’s the market?’ is irrelevant,” he says. “You can’t generalize the supply and demand; you really need to talk about the specific segment and community.”
The market is doing very different things in Marin, Sonoma and Napa counties. But we can’t even decipher the picture at the county level until we break it down even further, to the community level.
Sonoma slowdown
Since the peak of 2005, Sonoma County home prices have declined somewhat, though not drastically. Given that prices are still higher than they were in 2004 (and any year prior), what we’re seeing is just a dip, a correction of the overinflated prices of two years ago, says Ted Horsman, owner of Re/Max Central in Santa Rosa. Home sales are also down across the county. Horsman feels the dip in prices and sales will eventually stimulate the market, sending it back up in a reasonably short time. “Our economy in this county right now is extremely strong—the growth rate is up, employment is high and interest rates are low,” he says. “When we look at the current real estate market, what we see is an inventory of extremely well-priced properties.”
With more affordable prices and plenty of inventory to choose from, it’s a buyer’s market. That is, buyers are able to make demands they weren’t able to a year ago, like asking sellers to include appliances, replace the roof, paint the exterior or even give some cash back at closing. “It’s an incredible time and area for buyers to invest in, because they can pick and choose,” Horsman says.
In fact, Horsman is seriously considering buying another Sonoma County property himself. “The market is not dead. It’s a little slow, but I think we’ve reached the bottom. I’ve been in this business 31 years, and I’ve seen this same up-down cycle three times now. It happens every 10 years or so. We’re already seeing multiple offers starting again, and that’s a strong sign of an impending upturn.”
Industry insiders agree that the “luxury market” of Sonoma County (homes priced at $1 million and beyond) has remained steady in both price and sales, but a slowdown in the entry- and mid-level market—which accounts for the greater percentage of homes in the area—has a greater effect on the countywide statistics suggesting a cooler market.
Napa settles down
The story in Napa County isn’t much different than in Sonoma County. In general, median prices are a little higher, but prices overall have dropped in the last year. And in all Napa County communities, inventory is higher than it’s been in years. Homes are currently on the market for an average of 120 days—a far cry from the buying frenzy of just a few years ago. Nonetheless, Christine Jameson, co-owner of Napa Century 21 Exclusive, feels the county market is stabilizing, and says there’s no cause for alarm. “There really isn’t a great deal of inequity between one year and another, it’s just that a lot more homes were sold a year or two ago, and more quickly,” she says.
Up-valley communities, such as St. Helena and Yountville, have seen little or no drop in value. Jameson points out that these towns are big tourist destinations, and many people who buy second homes there aren’t as concerned about interest rates or where the market is going. The cities of Napa and American Canyon, on the other hand, have seen a noticeable decline in asking prices for both new and existing homes. American Canyon has been the hardest hit by the current downturn, according to Jameson.
“American Canyon is very unfortunate. It’s had the highest rate of short sales [a selling price that’s less than the mortgage owed on the home] and foreclosures in Napa County. That’s where the prices are really beginning to drop. It’s an up-and-coming area—there’s going to be a lovely town center and there are lots of new subdivisions—but they’re not getting higher prices for resales yet. Trying to refinance or turn homes around is very difficult now, because the homes aren’t worth what owners paid for them a couple of years ago. Some homeowners are upside-down on their mortgages.”
Marin markups
And then there’s Marin. While not necessarily booming like its neighbor San Francisco (that’s right—The City is booming), Marin County continues to see rising home prices year after year. The lovely anomaly that is Marin just keeps going up in value. Heidi Pay, VP of sales and manager of the McGuire Real Estate’s Mill Valley office, attributes the continued rise to “a limited supply of homes, the higher pay scale in San Francisco, which supports the higher housing prices, and the idyllic lifestyle.”
The high end of the market is especially robust, with “an explosion of sales in the $3 million-plus range,” according to Pay, who adds that, of all the towns in Marin, Kentfield has seen the highest increase in resale prices this year.
Sometimes the headlines appear to be conflicting—home prices up in Marin, home prices down in Marin—but that’s because real estate statistics are typically compiled and reported on a monthly basis. Industry analysts say assessing quarterly (or yearly) performance is more helpful when making generalizations about a local market.
Pay explains, “Sales prices have consistently gone up every year since 1992; there’s been no drop. While the drop in median price from a high in April of $1 million to $880,000 for May garnered publicity, the May figure was still above the 2006 median by $24,500.”
It’s important for consumers to pay close attention to how statistics are presented, because seemingly contradictory news may suggest something other than natural fluctuations. They just might point to the use of different calculating measures. The biggest distinction to watch for is “average” vs. “median” home prices. The average is a simple calculation in which the total dollar amount of all homes sold in an area is divided by the number of homes sold; the median is the middle price, the point at which half the homes sold for more and half for less.
To illustrate the problem, Pay compares 2006 to 2007 year-to-date figures for Tiburon. “In Tiburon this year, the number of homes sold went up, and the average price went up $204,000. But the median price went down $250,000. The reason is, there was one $20 million home sold. So when you have an aberration like this, it skews the average. But the median is the middle house of all the homes. So that $20 million home will be offset by the lowest value home, and doesn’t weigh as heavily on the statistics. The median is truly a better measure.”
Like its North Bay neighbors, Marin saw fewer home sales countywide in 2006 than in each of the previous four years. But take this seemingly negative fact with a grain of salt, since there are always exceptions to the trend. For example, sales in Greenbrae have increased 220 percent in the past year; and Greenbrae, Fairfax, Mill Valley, Corte Madera and Larkspur all have a high number of listed homes currently in contract (in other words, sales are pending). That indicates a strong seller’s market.
Time to sell?
Perhaps you’re considering selling a property in the North Bay, but aren’t sure if the time is right. Jameson cautions potential sellers not to expect the enormous profits garnered a few years ago. “Once we get through the correction, there’ll be a slight upward trend. But there definitely won’t be a massive appreciation like we had in 2003 through 2005. The chances of that happening again in the next 10 to 20 years are very slim,” she says.
Ah yes, the glory days of real estate. After witnessing the extraordinary good fortune of those who made a killing with little effort (maybe we were even fortunate ourselves), many of us can’t shake the hope that real estate can make us rich, quick. Like a gambler who strikes a jackpot once, it’s tough to shake the dream that it can happen again. But these days, sellers with dollar signs in their eyes may need a dose of reality, according to Jameson, who predicts “prices will possibly go down a bit more, at least for those properties whose sellers are holding out for over inflated prices.”
In other words, sellers take heed: Make sure your property is priced reasonably according to today’s market. You probably won’t get what you would have a year or two ago (unless you’re in Marin), and testing the waters doesn’t always work. Pay offers the following warning: “Sellers who fish for higher prices that are out of sync with today’s market may find the strategy ends up costing them more in the long run. Because when a property sits on the market for an extended period, agents assume there are issues with it. Being fresh on the market can be a huge advantage, especially when the property is priced properly—or even underpriced—because of the attention and competition it draws.”
Horsman tells the story of a man who was upset because an agent wouldn’t list his Sonoma County house for $700,000, because it was only worth about $550,000 according to current area comparable sales figures. The man figured if it was advertised heavily in Marin and San Francisco, someone (who didn’t do their homework) would buy it and think they got a great deal.
Unfortunately, the lure of the past proved to be the disappointment of the present. Today’s market suggests that the ever-climbing appreciation rates of a few years ago are, indeed, a thing of the past. The man hoped to take his profits and move to Oregon. Because he didn’t have enough equity in his property to relocate with the proceeds, selling his home for $550,000 was unacceptable. But while this man’s wishes are unreasonable given today’s market, Horsman believes the patient seller will be rewarded—just give it a little more time.
In other words, don’t panic. With very few exceptions, reality is decidedly less dire than the hype and hearsay…at least here in the North Bay.
