Small inventory pushes home-price increase in region

According to San Diego-based real estate service DataQuick, the median price of the 523 homes sold in the county in January was $219,000, the highest since May 2010. (Robinson Kuntz/Daily Republic)

FAIRFIELD — It’s a buyer’s market for price and a seller’s market for terms.

That’s how Don McDonald, managing partner of Re/Max Gold Elite in Fairfield, describes Solano County’s real estate market. And it’s not changing, because the inventory of homes in the county is at a historically low level and prices – while increasing – are still dramatically below those of a half-decade ago.

According to San Diego-based real estate service DataQuick, the median price of the 523 homes sold in the county in January was $219,000, the highest since May 2010, but still well below the market peak of $490,000 in November 2005. According to the Bareis Multiple Listing Service, which uses slightly different criteria, the January numbers were 437 and $224,750.

Regardless of the source, prices are up, inventory is low.

“We were the first into the (mortgage crisis) problem and we’re coming out of it quicker and more aggressively than other areas,” McDonald said.

As prices increase – January was the eighth straight month in Solano County of month-over-month increases compared to a year earlier – the number of available homes stays low. For example, just 377 homes were available countywide in January, compared to 636 a year earlier. And the 2012 number wasn’t high, according to McDonald.

“There’s no light at the end of the tunnel with inventory,” he said. “People ask if there will be a double-dip if the market comes back, but never in 100 years of history have there been (inventory) numbers like this. We’ve gone from six months ago, when there was two and a half month’s supply (of homes for sale), to where it’s about a week’s supply now. There’s literally 30 potential buyers for every house that’s available.”

John Wilkerson, a Realtor with Gateway Realty in Vacaville, agreed.

“There’s absolutely no inventory,” he said. “There’s less than seven days’ inventory on the market, so if I’m a buyer, I realize I’m going to have to pay over the asking price and I’m not getting any closing costs. If you’re a seller now, you get 10 to 15 offers right away if you have a nice home that’s priced right.”

The result of the small inventory, according to McDonald, is a continued trend of homes being purchased by investors who turn them into rentals.

“The market is saturated with investors,” he said. “People say, ‘Send me a house and I’ll buy it.’ ”

Wilkerson said that trend has slowed somewhat in recent months due to increasing prices, but continues.

The dearth of available homes is consistent across the region. According to the MLS, Fairfield inventory was down 27 percent in January compared to a year ago, while Suisun City took at 48 percent drop and Vacaville was down 33 percent. Rio Vista was up slightly, but the numbers are small enough that they aren’t statistically relevant.

McDonald said that the pattern of few available houses and plenty of investors, which makes it difficult for first-time buyers or even people looking to sell their house and move up, will continue.

“That will stay until the rental market is saturated and rents come down,” he said. “If you buy a home at $285,000 at 3 percent, your payment will be significant less than you can rent it for.”

Prices will have to increase and interest rates would need to increase to change that formula, McDonald said.

“This is the typical cycle of real estate, but it’s more extreme,” he said. “You have buyer’s markets, then seller’s markets, but now we’re seeing bigger peaks and valleys. We’re probably looking at three years of crazy appreciation with values up, which will bring a whole new set of problems.”

McDonald said he expects the Solano County market to finally find balance at a median price of $280,000 to $300,000 – but thinks it might be three to five years before that finally happens.

Wilkerson said that the idea of a “shadow inventory” – a large number of homes owned by banks that could be dumped on the market – is still a popular topic, but that real estate professionals have to deal with what they know.

“Our activity says there are X amount of homes that are there to sell,” he said.

Across the nine-county Bay Area region, it was the strongest January sales in six years and the 10th straight month of year-over-year increases.

Solano’s median price is the lowest in the Bay Area by a good margin – the next-lowest median price in January was $301,500 in neighboring Contra Costa County. However, the 523 homes sold ranked behind only Alameda, Contra Costa and Santa Clara among the nine counties, indicating a regionwide housing shortage.

The market continues to be affected by distressed sales – short-sales or foreclosures. In December, the most recent month for which data from the California Association of Realtors is available, 58 percent of Solano County sales were distressed sales. That was down from 70 percent a year ago, but up from 55 percent in November. Statewide, 36 percent of home sales were of distressed properties.

“That’s the number in Solano County for a few factors,” McDonald said. “There was a surge of growth, building and homeownership from about 1998 to 2005 at the same time prices inflated, so we have a high distress rate. Values lost about 60 percent and a lot of people are still in a situation where they can’t sell their home for what they owe.”

The result is banks becoming more aggressive in encouraging short sales, where the homeowner and seller agree on a price that’s below what’s owed, according to McDonald.

So with this market, what should a prospective homebuyer do?

“You obviously need to know how much you’re comfortable to pay,” Wilkerson said. “Know that you’re going to pay over the asking price and all closing costs. It’s important not to get too emotional about it, but to be patient.”

McDonald agreed.

“The best scenario is to pick a good agency and broker with a lot of homes,” he said. “The buyer needs to understand that the price will be good, but you have to sacrifice some of it. If you’re pre-approved at a certain level, bid on something for less because you’ll have to pay over the asking price.”

Reach Brad Stanhope at 427-6958 or bstanhope@dailyrepublic.net. Follow him on Twitter at www.twitter.com/bradstanhope.

Brad Stanhope

Brad Stanhope is the Daily Republic's news editor. He began his career at the DR in the last millennium. He spent 17 years as a sports editor and three years as the associate editor before spending three years away from the newspaper (though continuing as a columnist). He returned in December 2010 as news editor. Brad lives in Suisun City with his wife, Mrs. Brad, and two sons. He enjoys cheese.

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