Still a seller's market

This article is reprinted from Wine Country Real Estate, a special advertising section of The Press Democrat.

It's already April and spring is unfolding. Since both raindrops and sellers are in short supply again this year, it's time to adapt our expectations to what's around us and modify our actions accordingly. The first quarter is behind us, making this a good time to take a look at emerging trends in the real estate market.

Our local Multiple Listing Service (MLS) shows that the low inventory trend that started in 2013 continues into 2015. Currently, there are only 667 active listings in Sonoma county, with a sales trend of 369 homes sold last month. Assuming sales continue at the same pace, it will take about seven weeks to sell all of the homes on the market today. That means we'll run out of homes to sell by the end of May! Of course, we won't really run out of homes since new listings come to market all the time, replenishing the supply.

In real estate, inventory is a key factor in determining price. It's a basic supply and demand equation. If there are more buyers than there is product, prices will go up. If there's more product than there are buyers, prices will go down.

We saw a dramatic example of this in 2006 through 2008 as distressed properties flooded the market, pushing inventory to record levels and creating a backlog of properties to sell while plummeting home values. At one point, we had 11 months' worth of supply, which was more than enough by anyone's standard. Today, we have approximately 1.8 months of supply available. Just as we need more rain to replenish the reservoirs, we need more listings to bring balance to the market.

A short stack of homes leaves buyers with few options from which to choose and often puts them in the position of competing for the same listing. Last year, agents reported receiving multiple offers on 26% of all homes sold. So far this year, that figure has risen to 29% of reported sales, 40% if you only look at homes that sold within the first 30 days. If tight inventories continue, buyers will continue to face multiple offer situations, especially on homes that are priced competitively and have been updated.

Buyers, however, may be saying enough is enough on prices. March saw the first dip in average sales price since January 2012. After 25 consecutive months of increased value, the average sales price of residential property in Sonoma County dropped 8% compared to a year ago. $568,550 in March 2015 versus $618,487 in March 2014. In March, the median price (half of the homes sold for more, half sold for less) increased a modest 2%, year over year—the smallest increase in 24 months.

Mortgage rates are the other great equalizer in the marketplace. When rates shift upward (which we've anticipated for over a year and are still waiting to see), buying power decreases. The borrower who was approved for a $400,000 loan may suddenly only have $390,000 available to them, leaving $10,000 less to offer on a house. With less money to spend, offer prices will temper. Many mortgage experts, including kiplinger.com, project interest rates will rise about 1 point by the end of the year.

One thing that will certainly impact home values is an increase in inventory. The more homes on the market, the more options buyers have from which to choose. More choices means less competition and fewer bidding wars. Fewer bidding wars lead to stabilized prices. 599 new listings showered the market in March, following four months with an average of only 315 new listings each, which was a 90% increase! It's a great start and, if it continues, could shift the balance between buyers and sellers back toward the middle.

Making the sale

If you're one of the hundreds of buyers ready to buy a home this month, it's important for you and your agent to position yourself for success. It doesn't take too much extra to effort to make the best presentation possible. Buyers should make sure the offer addresses each of the seller's concerns and requests, specifically about timing and property condition. It helps if the listing agent provided a complete packet of information about the property up front, including seller disclosures and a pest inspection. Even in a tight market, the seller may accept a slightly lower offer because it is more complete. Money isn't always everything to a seller.

Not all offers work out, even when you do everything possible to accommodate the seller's needs. Sometimes another buyer is able to offer something you simply can't (such as cash). But when evenly matched with another offer, the little things make a big difference. Make sure your offer is complete, including all documentation of your financing (loan approval, bank statements, etc.) If your agent is a true professional, they will make certain your packet is complete and presented to the listing agent skillfully, putting you in the best possible light.

As spring unfolds, good luck in all of your real estate endeavors. And remember: think rain! A few spring showers can make a real difference.