Rising interest rates are beginning to have a significant effect on residential real estate in Sonoma County, forcing buyers and sellers to make decisions about whether to hurry up and close deals, or postpone the dive into the market where obtaining financing is more difficult.
Local experts say rising mortgage rates are hitting buyers particularly hard. At the end of 2021, the 30-year average rate was 3.11% and rose to 5% as of April 14, said Jim Michaelsen, director of sales at Compass Real Estate Brokerage in Petaluma.
Rates moved into the 6% range after the Federal Reserve last week raised its benchmark lending rate by three-quarters of a percentage point.
The fallout is beginning to spread locally, including some price reductions in the scorching Sonoma County market where, for the past two years, home prices have continued to climb.
The median sale price of a home in the county fell from $660,000 in May 2020 to $865,000 in May of this year.
“We are seeing price reductions,” Michaelsen said. “If you come in and say, ‘Jim, you could get a loan at 4.5% and now it’s at 6%. Well, I can’t qualify for that. The only thing we could do is reduce the price appropriately to be able to get you to make part of that payment.”
In the first week of April, there were 486 homes for sale in Sonoma County and last week there were 690, Michaelsen said.
“It’s a huge jump in inventory,” he said. “I think we’re seeing sellers on the close saying, ‘Wait a minute, we’re starting to hear about price cuts. “”
Every seller tries to gauge the market fearing that rates will rise further given the state of the overall economy where higher interest rates could trigger a recession.
For example, Erika and David Rendino, owners of the RE/MAX Marketplace in Cotati, were taking a tour of the home near Oakmont last week as they prepared to list the residence for $1,595,000. The home is a three-bedroom, three-bathroom structure on a half-acre lot with a swimming pool in the private community of Wild Oak.
Sellers bought the house at the bottom of the last decline during the Great Recession as a second home, David Rendino said. They had planned to eventually sell the property, but market adjustment has led them to put the house on the market now.
“We’re seeing a lot of that right now,” he said. “Plans are accelerating.”
The market, however, is still not balanced as there is currently about a month’s supply of inventory for sale in Sonoma County and would need to reach a three-month supply to even things out, Rendino said. .
“There are definitely more opportunities for buyers right now. But stocks are still very low,” he said. “It’s always a seller’s market. But it is a perception that is starting to change.
Rising mortgage rates are likely to affect buyers trying to afford their first single-family home, especially those looking for a price range of $600,000 to $800,000 in the county.
Ross Liscum, a Santa Rosa realtor affiliated with Century 21 NorthBay Alliance, said he had a couple who recently lost a home in the Rincon Valley with an offer of $685,000 because there were three other offers. on the residence.
“We didn’t get it, so we’re back to looking around,” Liscum said. “There aren’t many choices in this price range.”
Some may choose to continue renting or opt for a condominium, real estate agents said.
“It excludes some people from the market,” said Katie Kelly, real estate agent at Compass. “Or, they were looking forward to their first home in the $700,000 range and it turned into a condo. They had qualified for $700,000 and now they qualify for $550,000.
Kelly noted that the rate spikes so far have been “more troublesome” for buyers in price ranges approaching $1 million and above and that those customers have had to readjust their prices.
However, many regional buyers still find value in the North Bay because comparable homes here are cheaper than in other parts of the Bay Area and they find local prices more affordable. For example, the median sale price of a home in San Francisco in May was $1.5 million, according to real estate brokerage Redfin.
“The North Bay remains attractive and always will be,” Kelly said. “We’re cheaper in every way, not just in real estate, but in every way.”
Local experts have warned that buyers and sellers will continue to adjust to the market as mortgage rates hit historic lows over the past two years, an anomaly for decades.
Gary Lentz, loan consultant at LoanDepot in Santa Rosa, said he remembers when he bought his house in 1997 at a mortgage rate above 7%.
“For people who take a long-term view of the housing market, we are fundamentally a strong market. We are going through a little short-term tumult. But it’s necessary and healthy,” Lentz said.
You can reach business columnist Bill Swindell at 707-521-5233 or [email protected]