Sonoma Valley home prices soar almost 25 percent

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Sonoma Valley home prices soared 24 percent this spring, an impressive jump fueled by a scarcity of houses on the market, agents said.

The average sale price for Valley homes and condos in the three-month period of April, May and June of this year was $1.3 million, compared with $962,000 in the same time period in 2017, based on numbers from Bay Area Real Estate Information Services.

The number is for both condos and single-family homes.

Agents in the Valley attributed the double-digit increase to factors including a cluster of high-end sales and a dearth of homes for sale. The latter is a problem that has persisted for about five years locally and throughout the Bay Area.

“Last year at this time we had 131 houses on the market. Now we have 104,” said agent Tracy Reynes. She was referring to the number of homes listed for sale last week. “That is 23 percent fewer homes. That drives prices up.”

At present, Reynes said, there are only 2.1 months of inventory available. This means that if no new homes went up for sale, it would take about two months to sell every home on the market.

“Anything below six months is considered a seller’s market,” Reynes said. “We are way, way below that.”

Agent David Kerr said, “We had seven homes on tour today. That is a tiny amount.” Kerr was referring to the weekly Sonoma Valley prescheduled tour, a real estate open house tradition in which local brokers visit properties currently on the market.

Typically, as eager buyers compete for the few available properties, they up their bids in an attempt to score, and prices rise.

“It’s supply and demand,” said agent Carol Sebastiani. “As supply decreases, the price is going to go up.”

While the double-digit jump is striking, with so few properties selling, even a few high-end transactions can affect the average price.

Kerr said, “The east side of Sonoma is where a lot of the sales took place. We had a couple of sales in the $3 million range,” driving up the average.

Agents said last fall’s wildfires had much less of an effect on prices locally than in other areas.

“Here in Sonoma Valley it’s limited to Glen Ellen and the hills. We did not have as much subdivision housing with large tracts of housing lost,” said Daniel Casabonne.

“The Valley didn’t experience the huge surge Santa Rosa and the 101 corridor saw,” Reynes said. “In that area, people were buying up replacement properties or buying in lieu of renting, and it really drove prices up there. That being said, in Sonoma Valley we didn’t really see a big push like that.”

While more than 5,000 houses were destroyed by the wildfires countywide, according to Cal Fire, the Valley total of residences lost is estimated to be approximately 400. While the Valley and the county are grappling with a tenuous overall economic recovery, the residential real estate market has remained robust.

Factors including precipitous price jumps such as the one this spring have given rise to speculation about a real estate bubble – speculation local agents disputed.

“The market is different than it was the last time we had an adjustment,” said Casabonne. “Back then (in the early 2000s) someone could get a loan with just stated income. But now, loan requirements are stricter, so we don’t have people who are just payments away from losing their homes.”

Because mortgage lending regulations had been loosened during the Bush administration, many people were able to get loans with payments they couldn’t afford. The resulting disaster, which began around 2008 and continued for years, was the country’s worst real estate crisis since the Great Depression.

Reynes said, “People say we’re in a bubble. I don’t think that’s true. I don’t think we’re going to see 2008 again. Everyone who has bought in the last 10 years has been much better qualified for a mortgage because lenders tightened up their standards.”

Kerr added, “The likelihood is not as great because the bank regulations are there,” though he warned that the present administration is beginning to roll back some standards.

While agents said they weren’t concerned about a bubble, they conceded that the area is in a bit of a slowdown.

“The market is good, but I wouldn’t say homes are selling like hotcakes,” said agent Duane Margreiter.

“We have seen price reductions on some properties – though some of that is a reflection of people shooting to get to the top of the market” and listing homes at too-high prices, he said.

Reynes said, “There are more price reductions across all price ranges in the Valley. This tells me price fatigue is starting to set in,” referring to the near-constant escalation of prices for the last five or more years.

“There are many more price reductions than I’m accustomed to seeing. That will help to dampen that extreme rise in prices moving forward,” Reynes added.

“We are seeing a slowdown,” Kerr acknowledged. “We are seeing buyers sit on the sidelines now. We are not seeing the same levels of activity we saw at the beginning of the year.”

Kerr noted that real estate operates seasonally, with the busiest time the second quarter – April, May and June.

“The market in the Valley tends to slow in July and August. We do tend to see a spike at the end of August and September, and that tends to go through October – and around Oct. 31 the market dries up again,” Kerr said.

Sebastiani summed up, “At some point, the market inevitably will correct, we just don’t know when. You can’t sustain the kind of momentum we have indefinitely.

She added, “You have to be prepared for that inevitability at all times.”

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