A shortage of homes for sale combined with strong demand continued to push up Bay Area home prices last month, and the situation is only going to get worse in the North Bay when those displaced by the wildfires seek new housing.
The inventory shortage is statewide but “particularly acute in the Bay Area,” the California Association of Realtors said in news release.
On Friday, CoreLogic reported that the median price of new and existing single-family homes and condos in Bay Area hit $739,000 in September. That was up 13.7 percent from September 2016, the largest yearly gain for any month since January 2014. It was down 0.1 percent from August, reflecting a normal seasonal slowdown.
The number of homes sold fell to 7,338 last month, down 13.6 percent from August and down 7.5 percent from September 2016.
It’s too early to know what impact the Wine Country fires, which started Oct. 8 and destroyed an estimated 8,800 structures, are having on home prices and sales in the North Bay. The CoreLogic report reflects transactions that were recorded in September.
Anecdotally, real estate agents say that sales in Sonoma County have picked up as buyers who were taking their time before the fires rushed to nab a house before demand from fire victims grows.
At the same time, “We’ve had a rash of fire victims buying for cash,” said Diana Gorsiski, president of the North Bay Association of Realtors. “Even if they are rebuilding, they know it’s going to be two to three years minimum.” Given the tight rental market, some would rather buy than rent in the meantime.
Some fire victims are looking into a loan for disaster victims backed by the Federal Housing Administration. Called a Section 203(h) loan, it’s made by qualified lenders to people who lost a primary residence they owned or rented in a major disaster and are rebuilding or buying another single-family home or condo.
Buyers can borrow up to 100 percent of the purchase price of the replacement home. When lenders are calculating the debt-to-income ratio on the disaster loan, they don’t have to count the mortgage on the destroyed home if they had adequate insurance and are working with their original lender to apply insurance proceeds to that loan, said Michael Regan, sales manager with Stearns Lending in Petaluma.
The maximum loan amount is the same for all FHA loans and varies by county: It’s $595,700 in Sonoma and $636,150 in Napa. Borrowers pay the usual FHA mortgage insurance premiums.
Regan has firsthand knowledge of the housing market. He recently purchased a home and was going to put his existing Petaluma house on the market just before the fires broke out. He waited a few weeks and listed it a week ago Saturday. By Saturday afternoon, he had two cash offers, both for more than the asking price. He said the last two homes in his neighborhood, Adobe Creek, sat on the market for 40 to 50 days before the fire.
“It’s definitely not the same market it was before the fire,” said Rick Laws, senior vice president with Pacific Union International in Sonoma County. People who “had the ability” began looking to secure housing even before the fires were out.
“We have some highly qualified and motivated renters and buyers who are offering significantly over-market prices,” for homes and long-term leases, he said. He suspects this flurry of activity will subside soon and things will become less volatile. But he also knows that “we are going to run out of housing before we run out of need.”
Before the fire, Sonoma County had only three months of unsold inventory, meaning it would take three months to sell all homes on the market at the current pace of sales. Inventory averaged 2.2 months in the Bay Area (compared with a long-term average of 4.4 months) and 3.2 months statewide.
There are many reasons for the inventory shortage. One is that new construction “remains well below anything close to a normal level historically,” said CoreLogic analyst Andrew LePage. New-home sales this year are 5.1 percent below last year’s level.
The Realtors association contends that many long-term homeowners won’t sell because their property taxes would go up if they bought a new home, even a less expensive one. In California, homes generally are reassessed for property taxes only when they are sold. Many long-term owners are paying much less than they would if they bought the same house today, which has a lock-in effect.
California homeowners who are 55 or older get a once-in-a-lifetime chance to sell their primary residence and buy another of equal or lesser value and transfer their property tax base from the old house to the replacement house. However, the new home must be in the same county or in one of 11 counties that accept transfers of property tax values.