Sonoma County homebuyers no longer in ‘panic mode,’ but prices unlikely to return to pre-pandemic levels
For the past eight months, Salvatore Taormina has been looking to move from his home in Petaluma to a larger, more modern property on the west side of town.
The problem was that the local real estate market went insane.
Bidding wars, cash deals and offers six figures above the asking price became the norm.
The frenzy was pure supply and demand: too much demand, partly fueled by a rush of pandemic homebuyers from San Francisco, Silicon Valley and beyond pouring into Sonoma County; and not enough supply after 6,000 homes were wiped out in wildfires over the past few years.
“I’m not used to having to go against 10 or 20 people overbidding hundreds-of-thousands on a home that’s already overpriced,” Taormina said.
It has been more than a year after the home market took off in the summer of 2020, and sale prices remain at historic highs. But local real estate agents say they’re seeing the intense competition begin to wane, leading to some softening of prices.
“Buyers are not in panic mode anymore,” said Carol Lexa, former president of the North Bay Association of Realtors.
For Taormina, a 61-year-old retired paramedic firefighter, that means house hunting has become a lot less stressful.
“I’m a lot happier from a buyer's perspective,” said Taormina. “I feel more comfortable seeing a house and just waiting a little bit to see what’s on the market.”
No return to pre-pandemic levels
And though things have leveled off somewhat, that doesn’t mean Sonoma County home prices are about to suddenly come crashing back to pre-pandemic levels.
Local estate agents say they’re continuing to field a steady stream of buyers from other parts of the Bay Area who are freed from the office by remote work or are seeking more living space and relatively cheaper homes. And the amount of houses on the market remains scarce.
“This is the new normal,” said Jim Michaelsen, a sales manager at Compass Real Estate in Santa Rosa and Petaluma.
In September, the midpoint sale price for single-family houses in the county hit $755,000, a 2% dip from the month before. But that was still a 5% increase from September of last year, according to data compiled by Michaelsen.
Compared to September 2019, prior to the pandemic, the county’s median home price has rocketed by more than $100,000, or 16%, from $653,300.
A total of 507 homes were sold in the county in September, a 16% decrease from the month prior and a 6% drop from September last year. By the end of the month, just 605 houses were still on the market, a 14% decline from the month before and a 12% drop year-over-year.
The fairly even ratio of homes sold to unsold suggests the county’s limited single-family house inventory is struggling to meet the increased demand, real estate agents said.
No bubble in sight
Local real estate agents and economists agree the soaring prices likely don’t reflect a local housing bubble on the verge of bursting.
That confidence is in part because of the dearth of properties coming on the market as the region continues to rebuild after losing roughly 6,000 homes in wildfires since 2017.
Of that number, only about half been rebuilt. Building of new homes has slowed this year as the cost of building materials has spiked and global supply chains have been disrupted. In August, the overall cost of building materials in the U.S. was up 19% year-over-year, according to the National Association of Home Builders.
The current market dynamic stands in contrast to the lead-up to the last major housing crash in 2007, when banks gave out risky loans to buyers who artificially bid up home prices amid a widespread building boom, according to Sonoma State University economist Robert Eyler.
“We don’t have the same supply and demand conditions as in say 2005 or 2008,” Eyler said. “I think we’re going to be cruising at this altitude for the next two to three years, barring an economic collapse.”
Eyler also pointed to measures by the Federal Reserve to keep interest rates low during the pandemic, allowing more homebuyers to take advantage of favorable mortgages.
Even when higher interest rates eventually do return, the shift to remote work could mean Sonoma County will remain a viable option for buyers who may otherwise not have considered leaving urban centers in the Bay Area and the rest of California. That has raised concerns the influx could exacerbate the region’s already existing housing shortage — and whether middle-class families in the county will ever be able to afford to buy homes.