Mortgage rate spikes trigger action among buyers, sellers in Sonoma County

Rising interest rates are starting to have a significant effect on Sonoma County’s residential real estate, forcing buyers and sellers to make decisions on whether to hurry up and close deals, or put off diving into the market where obtaining financing is more challenging.

Local experts say the uptick in mortgage rates is especially affecting buyers. At the end of 2021, the average 30-year rate was at 3.11% and rose to 5% by April 14, said Jim Michaelsen, sales manager at Compass real estate brokerage in Petaluma.

Rates have entered into the 6% range after the Federal Reserve last week increased its benchmark lending rate by a three-quarter percentage point.

The fallout is starting to spread locally, including some price reductions in the red-hot market of Sonoma County where over the past two years, home prices have continued to climb.

The median selling price for a home in the county increased from $660,000 in May 2020 to $865,000 to 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 is at 6%.’ Well, I can’t qualify for it. The one thing we could do is to reduce the price adequately to be able to get you to make some of that payment.”

In the first week in April, there were 486 homes for sale in Sonoma County and last week there were 690, Michaelsen said.

“That’s a huge jump in inventory,” he said. “I think we’re seeing sellers on the fence saying, ‘Wait a minute, we are starting to hear about price reductions.’”

Each seller is trying to gauge the market with fears that rates may increase 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 completing a walk-through in 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 pool in the gated Wild Oak community.

The sellers bought the property as a second home at the bottom of the last dip during the Great Recession, David Rendino said. They had planned to eventually sell it, but the market adjustment resulted in them now putting the home on the market.

“We’re seeing a lot of that right now,” he said. “Plans are getting accelerated.”

The market, however, is still not in balance because there is currently about a one-month supply of for-sale inventory in Sonoma County and that it would need to reach a three-month supply to even things out, Rendino said.

“There's definitely more opportunities for buyers right now. But inventory is still really low,” he said. “It's still a seller's market. But it's a perception that's starting to change.”

The increase with mortgage rates is likely to affect buyers who are trying to afford their first single-family home, especially for those looking in a price range from $600,000 to $800,000 in the county.

Ross Liscum, a Santa Rosa real estate broker affiliated with Century 21 NorthBay Alliance, said he had a couple that recently lost out on a home in Rincon Valley with an offer of $685,000 as there were three other offers on the residence.

“We didn’t get it, so we are back out looking around,” Liscum said. “There is not a lot to choose from in that price point.”

Some may choose to continue renting or opt for a condominium, real estate agents said.

“This is pricing some people out of the market,” said Katie Kelly, a real estate agent with Compass. “Or, they were looking for forward to their first home in the $700,000 range and this has turned into a condo. They had qualified for $700,000 and now they qualify for $550,000.”

Kelly noted the rate spikes so far have been “more of an annoyance” for buyers at price ranges approaching $1 million and above and those clients have had to readjust their price points.

However, many regional buyers still find value in the North Bay as comparable homes here are less expensive compared to other parts of the Bay Area. For example, the median sale price for a home in San Francisco was $1.5 million in May, according to the Redfin real estate brokerage.

“The North Bay remains alluring and always will,” Kelly said. “We’re less expensive in all ways, not just in real estate, but in all ways.”

Local experts cautioned that buyers and sellers will continue to adjust with the market as mortgage rates have been at historic lows over the past two years, which has been an anomaly going back through the decades.

Gary Lentz, a loan consultant at LoanDepot in Santa Rosa, said he remembered when he bought his house in 1997 at a mortgage rate of more than 7%.

“For people who have a long-term vision of the housing market, we’re fundamentally a strong market. We’re going through a little bit short-term tumult. But it’s needed and healthy,” Lentz said.

You can reach Business Columnist Bill Swindell at 707-521-5233 or at bill.swindell@pressdemocrat.com.