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Housing market cools in San Francisco North Bay

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Real estate experts around the North Bay are getting early inklings that housing markets in the region are cooling after several years of rapid appreciation in sale prices and rents.

Some of it is thought to be related to the destruction of more than 6,000 dwellings in Sonoma, Napa, Mendocino and Lake counties during the wildfires of last October and this past summer, sending thousands looking in those and surrounding areas for alternate housing. But there are other local indicators a shift may be underway toward more of a market balance.

“Post-fires, there was a rush to shelter, and that rush to shelter drove prices up for rentals and resales,” said Rick Laws, senior vice president in Pacific Union International’s Santa Rosa office. “At the higher end, we were seeing some properties that were being purchased for replacements for Fountaingrove homes that are selling for 100 to 200 percent what the original prices were.”

The Fountaingrove area of northeast Santa Rosa is one of the higher-end housing areas of Sonoma County, with a number of homes over $1 million. The area was in the path of the Tubbs firestorm, which destroyed 1,420 homes there before it jumped Highway 101 and consumed almost as many dwellings in the Coffey Park neighborhood.

COMFORTABLE IN TEMPORARY HOUSING

A number of the fire survivors received as much as two years of funds from their insurance policies for similar housing and now have found alternative domiciles, reducing demand in the market, Laws noted. The Press Democrat recently estimated that as many as 7,000 relocated to other parts of Sonoma County from the burned Santa Rosa areas, and 1,300 may have left the county.

“We have found out now that people did get comfortable (in an alternate location), starting in summer and continuing to the fall we have had price resistance,” Laws said. “In spring, there were multiple offers on everything, so sellers wanted to lead the market and were adjusting their pricing accordingly.”

By fall, many sales going into escrow in Sonoma County have had one offer on them and the price had been reduced to sweeten the deal, he said. That resistance is leading to houses remaining on the market longer.

“It’s a healthy shift,” Laws said. “It does not mean the market is falling, but prices are settling to more of a balanced market.”

There might be another burst of home-shopping next year, as significant rebuilt housing returns to the market over the next six to 12 months and insurance rent allowances end, Laws said. But whether there will be more survivors who opt not to rebuild may not be known until then, as the cost of reconstruction is better-known amid the ongoing shortage of labor in key construction trades, and inflation in materials prices from California fires and natural disasters in other states.

MARKETS EASE ELSEWHERE

The shift in the housing market from the early months of this year is also being felt in Marin and Napa counties, according to Robert Bradley, managing broker of Bradley Real Estate, which has 11 offices and about 400 agents in the three counties.

“We’ve seen a shift in 2012 to a seller’s market, and now the momentum is shifting toward buyers,” Bradley said. Rather than a general fall in prices, putting buyers totally in the driver’s seat of negotiations, it’s more of a flattening out of growth, he said. “Prices, in my estimation, probably peaked for this cycle.”

One sign of a more balanced market is an increase in the number of dwellings sold, Bradley said. But to do so, it will take a move in marketing mindset for sellers and their agents, he said.

“They have to shift from a multiple-offer market to price properties competitively for the market,” he said. “Buyer agents have to be willing to write offers that negotiate price, and sellers have to be willing to negotiate. … What tends to happen is sellers get stubborn, part of it is the fault of the agent who is telling stories of houses getting six or seven offers. Not everyone has a remodeled downtown townhouse. Some properties will take longer to sell.”

While multiple offers and those above the asking price aren’t as prevalent as they had been in Napa and Sonoma valleys, properties that are priced appropriately are finding eager buyers, according to Logan Songer, general manager of Coldwell Banker Brokers of the Valley, which has four offices in both counties.

“We would like a little more inventory because of the buyers out there,” Songer said.

The median price for Napa County was $700,000 for the third quarter, up 10.1 percent from a year before, according to TrendGraphix data Songer provided. The number of properties for sale in the quarter was 12.3 percent higher than a year before.

Now, buyers have “more choices than they have had in years,” Songer said.

In one part of Sonoma Valley, the median price last quarter was $638,000, up 8.1 percent, per TrendGraphix data. The number of homes for sale increased 33.3 percent.

“We are seeing a lot of activity in both the Napa Valley and Sonoma Valley and are working with many buyers moving to our area from San Francisco, Palo Alto and other areas that have higher real estate prices in the Bay Area, due to what you can buy in our area compared to theirs,” Songer said.

OF INVESTORS AND CONDOS

Two leading indicators of market activity Bradley likes to look at are housing-investor activity and sales of condominiums and similar attached housing. In a rough look at property-tax data for the third quarters of 2015 through this year, his brokerage found a “huge” jump from last year to this year in sales of dwellings in Sonoma, Marin and Napa counties that weren’t owner-occupied, after gradual increases between the previous years. While occupancy of a dwelling by someone other than the owner on the title may not mean it’s investor-owned, Bradley said it’s the proxy available from county tax records.

“Investors tend to be the wisest group of clients,” Bradley said. “They have a gut sixth sense about things. When I saw a large percentage of sales to these folks, it told me we are probably at the top of the market.”

Whether that hunch is correct won’t be known until the trailing indicators of median sale prices becomes available early next year.

But one wildcard in the hand investors are holding is the impact of construction pricing.

“It’s affecting some of our clients doing major remodels,” Bradley said. “Some properties they thought they could buy and improve may not have as much margin as they originally thought.”

The condo market also seems to be not as hot in recent months. Price appreciation for such units had been outpacing that of single-family dwellings, Bradley said. Sales of attached housing are easier to compare with each other in a neighborhood than detached homes, especially if they are in the same complex and the differences between the units sold comes down to the level of remodeling.

“I’m hearing from my agents that condos are selling for less than they were before,” Bradley said. “That’s telling me that maybe the market has gone down a bit. It may have been because of people who overpaid, but to me it is a leading sign that the market is slowing down.”

Jeff Quackenbush covers wine, construction and real estate. Reach him at jquackenbush@busjrnl.com or 707-521-4256.