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Monday, June 27, 2016

What’s Normal About Median?

IMG_3689.jpgAnd who’s flocking to these median-priced homes in Napa?

Nothing about the median home price is normal in Napa.  Or local.

The median single-family home is now more than $575,000.  What “normal,” average, “medium” single family can afford that?  If a normal, average family is 3.3 persons, and it is, then a 3 or 2 bed, 2 or 1 bath home is what they need.  In this price range in Napa, those houses are getting smaller and smaller, 1000 to 1500 square feet.  That is getting very close to “cottage” in size and number of rooms, in fact overlapping.   Charming, except when 3.3 people need to get ready for work and school.

So who are these buyers for these “median” houses?  Here we’re talking all of Napa Valley, that is, town and country Napa County, not just the City of Napa (where prices are even higher).

Well, they aren’t first-time buyers.  What renter (if that’s what a first-time buyer used to be) can afford to save over $100,000 cash for the down payment and closing costs-- even if they could manage the mortgage payments?  They would also need to pay property taxes in excess of $6000/year.   Statistically only 1 in 17 adults between 20 and 49 can expect to receive a financial gift from their parents; so forget that—buyers need to actually earn the money, and then be able to stash and save it.

So who are these buyers for these “median” houses? 

Some, I think a lot, are right-sizers, which is another word for downsizing.  They already own a home and have significant equity, so they can sell, and use their cash to buy “down” to a house that frees them up to relax and enjoy life.

Some are trading up, but very few.  Even if a condo or entry-level home sells for $400-500,000, by the time that owner pays off their loan and sales commission, they don’t have sufficient cash for the median house at $575,000.

So, they are investors, absentee buyers, and second home buyers.  They are not “normal, median” families!  I surmise about 20% of these properties are destined to become rentals, and about the same number, second homes.

These buyers are people from all over the world with cash to invest in rental property for its income return.  They might have made money on other rental properties and want to exchange their gain into rental property in Napa to defer taxes and because of the appeal of owning in Napa, and because Napa has huge rental demand.  They may eventually switch a rental into their own second home. 

And, these buyers are people who can afford a vacation home in Napa-- by definition not their single-family (primary) residence, and by definition not local.  Napa is a second home market for people all over the world, single or with a family.

Note, they come from all over the world.  Maybe half of these buyers are Napa locals, the other half are from the wide Bay Area region or beyond.  Also note, cash deals account for about 20% of all transactions here in Napa.

So these statistics for “median single family residence” are very misleading, if you confuse median with normal.  Median just means equal number of transactions at both higher and lower price-- the middle price, not the average price.  And it has nothing, absolutely nothing to do with an average family, except that the average family is competing with these investors and cash buyers and down-sizers and vacation home buyers for the very same house.  This competition is much more acute here in world-famous Napa Valley than in markets elsewhere.  Welcome to Paradise. 
 
In a multiple offer situation, as is common in this median price category, whose offer is most likely to be accepted?  It is that of the cash buyer, or the buyer who can afford to toss in a bit more money to secure the deal.  Many “average” families are shopping at the limit of their loan pre-approval, and cannot compete.  They may write offers on three or more homes before they finally get one accepted.  Meanwhile fatigue and frustration set in, as prices are going up.  The median price in Napa County increased $10,000 in one month between March and April! 

For all these reasons a buyer’s agent ought to truly internalize their clients’ needs and wants, and, advise realistically how to craft a competitive offer that will prevail.    If you’re a buyer, know your competition!  And, work with a dedicated pro who feels your pain, and works hard and fast like it’s her own money that’s flying out the door.  Just my sense.

Statistics by city and county

Posted By Linda Fischer At 5:15 AM •
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