In a recent HousingWire article, “California home sales start year off strong…but will that last?“, low inventory is being cited as a concern for the health of the housing market in 2017, despite being off to a strong start. Data recently released by the California Association of REALTORS® shows California home sales increased from December to January for the first time in five years. February, although posting a decrease in sales of 4.7% from January, actually saw a near 5% increase in sales from February 2016 to February 2017. A good sign! Right?! However, as any seasoned real estate professional can attest, it’s a marathon not a sprint. Will this momentum carry us through the remainder of the year?
The recent bump in sales activity is being widely contributed to the Fed’s recent decision to raise interest rates [and moreover the expectation that this raise was only to be the first of three over the coming year]. Buyers are deciding to “get off the fence” and get serious about getting into a home before it becomes unaffordable to do so. Even so, buyers are still being selective and haven’t acquiesced that this low inventory market is a seller’s market. “Buyers are still exhausted from the competition in 2016 – too many buyers, and not enough houses to buy. Buyers and sellers have not synced up yet this year on where housing prices are headed: whether sellers will get further increase in prices, or whether buyers will refuse to pay more – or somewhere in between,” observes Rob Jones, Senior Sales Associate/Sonoma office. Even still, the recent bump in sales is expected to be short-lived, as affordability will become an issue for some would-be homebuyers as interest rates continue to rise.
However, the bigger concern for the housing market in 2017 lies with the lack of inventory. According to CAR Senior Vice President and Chief Economist Leslie Appleton-Young, “The number of active listings has been on a downward trend for the past 20 months and has shown no signs of improvement.” Currently, there are 2+/- months of inventory in our North Bay counties of Marin, Sonoma and Napa. A “normal” market bears closer to 6 months. For example, in Sonoma county there are currently 491 active listings for single family homes. From 2/27 to 3/27 there were 292 sales of single family homes, i.e. “current pace of sales”. Given the current pace, the existing supply of homes (if no new listings were introduced to the market) would be absorbed in 1.68 months. We will of course see an up-tick of homes coming to market, especially as the sun continues to shine here in the North Bay. However, a corresponding increase in demand is expected to offset those gains in inventory. “There are a few factors at play keeping the inventory low. When the bottleneck opens up we may see a minor correction in home prices, but the fact is we live in a desirable area and the demand for homes will continue to exceed the supply,” Lani Gullotta, Sales Associate/Sonoma office.
There is definitely a healthy amount of pent up demand from last year, and 2017 could play out to surprise us all — if the listings materialize.
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