Contrary to dire predictions, there has been no bursting bubble in the Rutherford, Yountville, Oakville, St. Helena, Angwin, Deer Park and Calistoga (the "up valley") market.
Yes, the large amount of inventory, general bad news -- like war, floods and hurricanes, our long drawn-out rainy winter, rising gas prices, and interest rates -- have contributed to an overall market malaise. But, the up valley real estate market is anything but stagnant. Price reductions, withdrawn, expired and new listings cause a daily flurry of activity. On any given day there are 8 to 15 new listings and 10 to 20 price reductions on single-family residential properties.
Sales of up valley residential property for the first six months of 2006 trailed behind sales for the last six months of 2005 by a whopping $34 million. From June through December 2005, 128 single-family homes sold. From January through June 2006 only 94 homes sold, for a total sales figure of $134,258,668. The average price of homes sold in 2005 was $1,268,000, whereas, the average price for the first six months of this year was $1,428,000. Those figures may be misleading. Jim Perry, a St. Helena Realtor, sums up the current market: "...the high end is strong, middle is slow and entry level is very slow." The high end that Jim is talking about means homes in excess of $2 million. Forty-three such homes have sold in the past 18 months. The most expensive home, on Galleron Lane in St. Helena, sold for more than $7 million. Meanwhile, the least expensive home sold was $389,500, in Angwin. The huge delta in these numbers make statistical averages somewhat unreliable.
The market that had been steadily increasing for the last five years at an annual appreciation rate of 15 to 20 percent, seems to have slowed down and cooled off. Or maybe, there is just a meeting of the minds between motivated sellers and buyers. Some real estate professionals will tell you that the market has returned to "normal" after a five to six year "abnormal" cycle. The days of multiple overbids and inflexible sellers may have come to an end.
Gerry Snedaker of Frank Howard Allen uses a simple formula to assess what is going on in the market. The key is looking at the ratio of active listings to those listings that are in contract (contingent, not yet sold). If more than 30 percent of the listings are in contract at a given time, it is a seller's market; if 25 to 30 percent of the listings are in contract, it is a balanced market; if less than 25 percent are in contract, it's a buyer's market. Of the 194 up valley listings, about 160 are active and only 34 -- 21 percent -- are in contract. According to Trendgraphix, Inc., a company that provides market activity analysis, in the past 12 months, Napa County listings are up 87 percent and sales are down 40 percent. Translation, like it or not: It's a buyer's market.
When properties are overpriced, fewer people can afford to buy. Recognizing the shift, sellers are starting to accept significant reductions from their asking price. A ranch house on St. Helena Highway recently sold for $975,000 -- $320,000 off of its asking price. Joel Toller, who represented the seller, says that his clients "understood the market shift, got a bona fide offer, took it and ran with it." A Bennett Lane, Calistoga, property sold for $6.9 million, $900,000 less than asking. Similarly, a new home on Crestmont that had been built by development speculators sold for $795,000 off the original asking price. A home on Mitizi Drive in Calistoga finally went into escrow after lowering the price $23,000. Some properties are facing repeated reductions without selling.
Up valley sellers are having a difficult time with the market transition. Buyers are skittish and easily put off. Buyers have been inundated with media news about the market shift and are expecting to see prices plummet and to get a bargain. Interest rates are on the rise, home improvement and repairs are costly. The buyer of an average-priced up valley home can expect to pay more than $1,000 a month in taxes alone. Combine these facts with an unrealistic seller and you have buyers withdrawing offers and pulling out of the market.
On the other hand, if a first offer is accepted, buyers are feeling they offered too much and want to go back for another bite of the apple. It is a tightrope for buyers and their agents. Some buyers will disappear from the market. Entry level and first time buyers may find the high cost of up valley property daunting or even prohibitive. Others will enjoy negotiating a fair deal without the artificial pressure of a crazed market.
Speculators, aka developers, who buy low, fix it up, and sell high, will have to think long and hard about taking risks in a slow or even "normal" market. Last fall, real estate professionals and their clients stood in line for a 5 p.m. first showing of a $550,000 Hudson Street property. A speculator snapped up the property at $50,000 over asking. The speculator did repairs and remodeling and brought the property back on the market at $802,000. That property has been reduced multiple times and is now being offered for $765,000. That doesn't mean there aren't some great buys with real value that will survive this market. A $795,000 home on Madrona, on a good sized lot, at the right selling price, with updating and upgrading should make any buyer a decent profit when resold. The issue is, what is the "right" price? That is where the experienced agent, with multiple transactions under her or his belt, comes in.
What does this market shift mean to sellers of up valley properties? Jan Dykema, a long Napa Valley Realtor, sums it up, "The more realistic the price, the faster the house will sell. Sellers have to take a good look at the market and price the house accordingly." Some sellers are having a tougher time with this concept than others. Sellers who put overpriced property on the market risk poisoning the listing. The initial interest and activity surrounding a new listing subsides quickly when a property is overpriced. It is hard to resume the momentum even if that price gets reduced. Property that languishes on the market becomes tainted. Realtors become wary that their buyer could end up dealing with a difficult or unrealistic seller. Buyers assume there is something "wrong" with the property. Despite repeated reductions, if the property gets no activity, angry sellers end up blaming the Realtor and withdrawing the property or jumping from one Realtor to the next. Martina Brennan, a veteran up valley Realtor, warns, "Pricing is the key." The old adage that comparisons are odious applies here. Martina thinks sellers need to take a hard look at what has been happening since the beginning of 2006, not compare this market to summer/fall 2005.
Sellers with "DTS" or difficult-to-sell properties, those properties that suffer from serious deferred maintenance, or have negative amenities such as a less than great location or an undersized lot, will no longer be able to demand sky-high prices. Sellers will have to address the negative issues by adjusting their price.
Aside from lowering prices and accepting less for their property, smart sellers are getting proactive. In Vacaville, Realtor Elizabeth Fry's client instructed her to offer 6 percent commission to any agent who brought a buyer. Ms. Fry's client knew that the market had slowed down and some properties weren't even getting showings. Recognizing that most buyers use real estate agents to find a home, the owner wanted to ensure that his property would receive Realtor interest and activity. Fortunately for up valley sellers, this market is somewhat self-propelled and doesn't necessarily require such extreme measures.
The up valley market is not necessarily job driven. Increasingly, it has been propelled by people who have the financial ability coupled with a singular motivation to enjoy the wine country lifestyle. "The Support Economy," a book by Zuboff and Maxmin, talks about a new society of individuals and opines that baby boomers and early retirees are taking their equity money and moving to resort destinations. Napa Valley is a premiere vacation and holiday destination. With up valley offering the quintessential wine country experience and a general quality of life that is hard to surpass, it is no wonder that up valley properties continue to sell, albeit slower and with more concessions being offered by sellers.
It's official. The market has shifted. It's a buyer's market.©
