For the last few years, real estate prices in the Bay Area have only been going up. Records at every price point have been shattered in multiple areas of the North Bay. Buyers started to lose hope, bidding wars became the norm, and being priced out of the competition became a harsh reality for many looking to purchase.
Earlier this year, I placed 13 offers on behalf of my clients, until we were finally able to land an off-market deal. In other conditions, the number could have easily reached 25 offers due to the market’s fury. For every offer my clients wrote, we were competing against five or more other offers that were typically 10 percent over the asking price. The North Bay became an area where a $750,000 budget had agents like myself showing properties listed at $675,000 because within days the asking price would skyrocket.
How did the market get to this point? It’s a fairly simple case of supply and demand, and it all started in Silicon Valley. Many people think the North Bay is expensive and compared to places like Waco, Texas, it is. However, for the people that live in Silicon Valley, the North Bay is their version of Waco, Texas.
Let me break it down for you. In May, the median home price in Silicon Valley was well over $1.5 million for a 40-year-old 1,200 square foot home. In areas like Sonoma County, the median home price in early 2018 was around $630,000. The $870,000 price discrepancy forced a lot of people in the tech industry to start looking for homes elsewhere.
With only a Wifi connection, many ditched the traditional office space and became digital nomads where they moved north to keep the cost of living low. Presumably, most of the people who fit this profile have higher salaries due to the higher cost of living in Silicon Valley. These tech transplants inevitably inflated Wine Country’s housing market. The beautiful North Bay area, mixed with its historically low interest rates, an influx of Silicon Valley residents, and the Tubbs fire which then led to a huge lack of housing inventory is what ultimately caused the severe appreciation in such a short amount of time.
Since the firestorm of 2017, the market has shifted dramatically. In the last few months, buyers are now acquiesced because they’re struggling to compete with affluent transplants now inhabiting north of the Golden Gate. I don't blame North Bay area buyers for taking a break. Nobody wants to be running around writing dozens of offers with outrageous terms, no inspections, and tens of thousands over a seller's asking price just to get rejected time and time again.
“We’re going to take a break,” are the words agents like myself are hearing from prospective buyers. That mentality adopted by North Bay buyers, coupled with increasing inventory and rising interest rates have caused a dramatic slow down in the market. In fact, it’s slowed down more than 10 percent in two months.
To put things in perspective, in January, there were 438 homes for sale in Sonoma County. In October, there were 1,138 homes for sale. This increase in inventory gives buyers nearly five times the options when buying a home, essentially eliminating the competition and causing sellers to drop their prices, if they want to sell their houses.
Where will things go from here? In terms of market trends, it’s hard to say exactly what will happen next. Because of the great recession, people tend to think that the housing market is in a bubble again due to the rapid growth and recent slow of the market. I do agree that the market has have slowed down, but I don't see there being a crash in the future. However, I do predict a healthy “correction.” Here is the advice I give my clients:
For sellers, this is a good time to cash out because it looks as if the market is slowing down and might not be coming back up in the near future. For buyers, this is a great opportunity as things are slowing down, to prowl for a deal because competition is softening and interest rates are still historically low.
The real estate market is full of ups and downs and can be very intimidating. The only constant about the market is this: change. The best way to make educated, smart decisions is to stay on top of what is going on in your market place and use that information and data to forecast future decisions. Use professionals, study the facts, and commit yourself to learning as much as you can about your biggest investment.
Brad Wilkinson is a top-producing real estate agent with Coldwell Banker in Sebastopol. He’s a fourth generation Sonoma County native, and loves showcasing real estate in the area he calls home. He has helped buyers and sellers of all ages and at all price points invest in educated real estate decisions. His reputation has resulted in multiple awards and ranked him among the top 5 percent of agents worldwide. Check out Brad on his social media pages where he puts out weekly videos highlighting the best parts of the North Bay, or visit www.bradwilkinsonrealtor.com.
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