I was recently quoted as saying that when the average price of homes sold in the Wine Country (Sonoma and Napa Counties) reaches the previous high threshold (reached in 2005-2006) that “peoples legs will start shaking.” I expect that we will reach that level (about $750,000) in the next few months. Many will think that we’re reaching that “bubble” level again and wonder when to jump on – or off – the bus. They will be like a squirrel in the roadway wondering which way to go.
I’ve done a reconfiguration of the average price of Wine Country homes sold between 1998 and 2015 and find an interesting conclusion. Prices jumped between 0% and 37% per year between 1998 and 2006. They fell between 1% and 28% per year between 2007 and 2009. They have climbed (with the exception of 2011) between 10% and 18% per year since then. The result is that the average price of homes sold in the Wine Country rose from $273,000 in 1998 to $714,000 at the end of April this year.
If one “normalizes” the market (which was severely skewed by a financing system run amok) and asks: “What if Wine Country real estate experienced a ‘reasonable’ appreciation rate of 6% per year between 1998 and now – where would we be?” Surprisingly, we’d be right at $707,000 – about 1% away from where we actually are.
So, I’m not expecting a bubble to burst as we experienced in 2006-7. And I’m not expecting a slowdown in demand for Wine Country real estate because the financial markets implode like they did in 2008. I’m really expecting a stabilization of the real estate market with a trend towards a “balanced” market with a steady appreciation rate in the 5% to 8% range. A balanced market will be a move away from the “seller’s market” that we have experienced for the past several years to a market with a three to four month supply of inventory.
In the short term, I think that we will see a further jump in appreciation as the “high end” market rebounds and we benefit from the tech industry success in the Bay Area. But, over the next year, I think things will moderate. Alternatives to high-priced Wine Country properties will attract that discretionary money to other markets.
The real estate market, as many other markets, experiences cyclical patterns. In my 40-year experience in California the real estate cycles typically run in ten-year periods. The “typical” cycle was severely disrupted in the 2003 – 2005 period – resulting in a severe over correction in the 2007 – 2009 period. I believe that things began to move towards “stabilization” in 2013-14 and should have a steady cycle into the early 2020’s. Through this period, I hope that you have enjoyment and prosperity.
I invite your comments and discussion.
Sources: Wine Country Group sales data and BAREIS MLS data 1998-2015.