Updated 08/05/2025 This newsletter is updated as the economy and situations change.
Although some cities have had small price increases, (GO BENICIA) most cities have seen housing prices remain flat this past year. More sales are concluding below the asking price and few happening above.
The recent housing shortage is gradually becoming a thing of the past. With each passing month more people are interested in selling versus buying which is creating an abundance of available inventory. How many homes are available for sale in a given city is divided by the number of homes that sold in the past 30 days in that same city. This is called months of inventory. Benicia is averaging 2.5 months of inventory and taking as long to sell. Vallejo is averaging four months of inventory and taking as long to sell. Napa is averaging six months of inventory and taking as long to sell. Want to know the stats on your city? Give me a call, Alex 707-332-8301
What always happens is the homes that are priced well, accept an offer within a few weeks. Homes that are priced too high, stay on the market for a long time until eventually someone makes an offer, typically much lower, that is accepted by the seller.
Overall, homes are taking an average of 3 to 6 months to sell. This is up from several years ago when they took 2 to 3 weeks to sell.
It has been my experience over the last 30 years, that given any city, when there are three or fewer months of inventory, prices continue to rise, at four months of inventory they stay flat and at five or more months of inventory prices start to decline.
Things that will affect home prices now are:
Population growth or decline – from 2022 through 2024 the Bay Area population has dropped an average of 80,000 people per year. It’s not surprising as many Californians are retiring out of state, and some small number are moving out of state to follow their employers. Add to this the fact that most couples now average 1.5 children per household which causes a declining population in itself. More people than housing creates a housing shortage and drives home prices up. More housing than people creates a housing abundance and drives home prices down.
Interest rates – Most people buy homes based on the monthly payment not the actual cash purchase price so the lower interest rates are, the lower the payments are, and the more people are willing to pay for a home. Mortgage rates seem to be stuck in the mid 6% range give or take a little. Although likely to come down in the future, the near future holds little promise for any significant improvement.
The economy/employment – The AI industry that is starting to hit Silicon Valley seems to be one of the main industries Northern California has going for it. Some people think AI will inevitably cost jobs because it will fulfill its own needs. An interesting concept. The Bay Area also has top-notch universities and hospitals which attract out-of-towners to come here leave their money and go home. Essentially, very good for our economy.
On the flipside, several companies have closed their doors or moved their headquarters from California. This is important on three levels: first, whether the economy is robust or weak makes house payments more or less affordable, second, it tends to make people more optimistic or pessimistic which strongly influences their decision to buy or not, and third, growing industries attract people to move into a city seeking employment and the opposite when industries are closing their doors. On top of this, San Francisco’s tourist industry is significantly down, but I’m hoping that’s just temporary.
Inflation – Inflation is almost as certain as death and taxes, and has always been tied to government debt. If you’re curious, where inflation is headed, the following link is a live feed of most every significant government debt in real time. https://www.usdebtclock.org/
Questions & Answers
Q Is now a good time to sell?
A I see no indication that housing prices will skyrocket in the next year or two. So, if you plan to sell in the next few years sell now because selling now eliminates the risk of the market turning down even if just a little before you sell. A bird in the hand is worth two in the bush.
Something to remember: if prices are high when you sell, your replacement property will be expensive. If prices are low when you sell, your replacement property will be cheap. Knowing this removes a lot of the perceived risk of timing the perfect market to buy or sell.
Q Is this a good time to buy?
A Yes, but only if you’re buying a home you plan to keep long-term. Though prices may come down over the next year or two due to a minor decline in population if you saw a minor savings in a few years it would be more than offset by the fact he would be paying down your mortgage instead of your landlord’s mortgage over those same few years. If you think rates will be coming down in a few years, it’s better to refinance when that happens versus waiting for it to happen. I love this saying, “You marry the house but you date the interest rate.” It’s a slang meaning you will be in the house for a very long time but rates go up and down. While rates are up you get a discount on the purchase price and when rates go down, and I believe they will be going down, you then lock in a great long term loan. In the long term you win both ways.
Some economists think housing prices will decline due to a small recession and some say inflation will cause home prices to rise even more. I believe though there could be a small recession in the near future there’s always inflation which inevitably drives prices up over the long haul.
Q What about property flipping?
A If you are thinking of flipping a home, it’s a mildly risky time to buy so do the renovation and the flip quickly.
Q Should I fix my home up before I sell it?
A Generally yes, because most homebuyers today are afraid of projects. Today the typical buyer is a young, well-educated, well-paid professional with little interest in working on a home. They prefer it “Move-in Ready”, but improvements can cost more than they benefit a sale. Cosmetic work is still considered the best investment when selling a home. Beauty always sells.
Q Is now a good time to buy a multi-unit income property?
A Yes! Just be sure the real CAP rate as reflected in the seller’s tax schedule E is greater than the current mortgage rates you will pay for that property. OR – Have a rental property professional such as myself oversee the transaction. (Alex Schauffert – 707 332 8301) Because multi-unit income producing properties are valued on their profitability or CAP rate (click here to see how it’s calculated). Some believe we are headed for a slowdown (recession). If this causes homeowners to disproportionally sell their homes they will likely end up as tenants. That will add to the demand of rental property just as happened in the 2007 recession. Then home prices dropped but rents went up. Add to that inflation, and multi-unit properties can be the investment of the century.
Disclaimer with regards to future predictions: Although this is compiled from my 30+ years’ industry experience, it is my best opinion. Its accuracy can’t be guaranteed and should not be entirely relied upon when making financial decisions. If you are not already in contract with a license California real estate broker, let me oversee what you want to do with regards to real estate investing and I’ll help protect your interest.
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