Gap between monthly cost to buy or rent a home in Sonoma County narrows since 2017

On their way to the grocery store, A.J. and Christina Ward usually walk past the Century 21 Real Estate office on Healdsburg Avenue in Sebastopol. With a rubbernecker’s curiosity, they sometimes stop and look at the home listings displayed on the window.

Priced well beyond anything they could hope to afford, the local real estate market represents for the young couple a different sort of highway pileup or train wreck.

“We stop and look at the listings, and every time it’s just like this cloud of sadness,” A.J. Ward, 33, said.

Across the country, rising monthly rents, lower mortgage rates and stabilizing house prices have made buying a home more attractive. Even in Sonoma County, the gap between the cost of buying and renting has narrowed significantly since 2017, according to a recent report by Realtor.com. However, for many like the Wards, buying a house here is a dream unlikely to come true.

During the fourth quarter of 2019, it was 25% more expensive countywide to buy than to rent - down from 39% more costly to buy in the same October-through-December quarter of 2017 based on monthly mortgage costs and rents. Notably, the North Bay wildfires in October 2017 caused the median price of a house here to soar because of the extreme demand.

The softening and rebalancing local housing market has been good news for those who can afford to buy and have been sitting on the fence, as interest rates on mortgages decline and home prices plateau or decline. That includes extremely well-paid individuals or two-income families whose combined pay is a strong six figures. But it makes no difference for young couples like the Wards, who are priced out of the homebuying market regardless of how high monthly rents go.

For them, buying a house in Sonoma County, where the median price of a single-family home last year was $650,000, the future looks brighter elsewhere unless the housing market collapses here.

Ward, who is originally from Kansas City, Missouri, said he and his wife likely will have to leave the area to buy a house or even afford an apartment of their own. Ward first came here a few years ago after college and started working as a zip-line tour guide.

That’s when he fell in love with the county. He left for a time and in 2015 met his would-be wife in Colorado, while training her to be a zip-line tour guide.

The two married in 2016 and came back to Sonoma County, where Christina Ward has family, he said. He got a gig at Sonoma Canopy Tours, a project of Alliance Redwoods conference grounds in Occidental. She landed a position at Canine Companions for Independence in Santa Rosa.

They both love their jobs, but buying a house requires them to earn much more income no matter how low interest rates go.

Real estate agent Erika Rendino, who co-owns Re/Max Marketplace in Cotati with her husband, David, agrees that the closing gap between the costs of renting and buying primarily benefits those who already were in the market to buy.

“I don’t see that many new buyers,” she said. “When interest rates come down, it might mean $100 or $200 less a month for the monthly mortgage payment, but there’s nothing out there for $300,000. Those people are out, it doesn’t matter if the interest rates are 2%.”

The Realtor.com report compared the median monthly cost of buying a home vs. median monthly rent. It found that in 26 of 593 U.S. counties reviewed, it actually became more affordable to buy than to rent during the fourth quarter of 2019.

Cody Horvat, a spokesman for Realtor.com, said the gap between buying and renting during the fourth quarter of the past three years has been “shrinking dramatically.” It was 39% in 2017; 27% in 2018 and 25% in 2019, he said.

Horvat said part of the reason is the share of income needed to buy a house also has declined. During the October-through-December quarter of 2017, the median-priced home in Sonoma County required 71% of the median income. That rate dropped to 57% during the fourth quarter of 2019.

“Meanwhile, the share of income needed to rent in Sonoma (County) hasn’t changed much,” Horvat said in an email.

A “cooling” in the local housing market since 2018 and lower interest rates have led to greater affordability and greater opportunity for potential buyers, he said. But not for everyone.

“While buying is still not totally affordable for everyone, the decision between renting and buying in Sonoma (County) continues teetering toward equilibrium,” he said.

But one only needs to take a close look at the cost of buying a median-price home in Sonoma County to see that even equilibrium is unsustainable for many local renters.

Stacy Iversen, a senior loan consultant at Allstate Mortgage Co. in Santa Rosa, said that even with low interest rates many people do not have enough money on hand for the 20% down payment necessary to avoid the added monthly cost of mortgage insurance.

Iversen calculated the monthly payment on a median-priced county home, $650,000 last year, with a 5% down payment and a conventional loan at 4% interest rate for a buyer with a 740 credit score would be roughly $3,905. That calculation includes monthly payments of $677 for property taxes, $180 for mortgage insurance and about $100 for hazard insurance.

Iversen, who has been in the mortgage business since 1986 and a loan officer with Allstate since 2001, said she’s seeing fewer people buying than in past years.

She said normally up to 60% of her business has been people borrowing money to buy homes. Last year, she said, it was more like 25% and instead she’s “swamped” with mortgage refinancings to get adjustments to lower interest rates.

Last week, The Press Democrat asked readers in an informal online query who would like to buy a home locally in order to share their obstacles to actually becoming homeowners.

One person, who asked that her name not be published because she wanted to retain privacy, said she came to Sonoma County 25 years ago and has been working for the county for the past 10 years. Her one paycheck is barely enough to cover her $1,650 rent and other monthly costs, including utilities, gas and insurance and food.

“I would think that local officials could recognize how close many of us - including those who work for the government - are to living on the street,” she said. “Like so many others, upon retiring, I will sadly leave Sonoma County in search of some kind of prosperity for a life hard worked.”

Another woman, an administrative assistant who also asked to remain anonymous, said she currently shares a two-bedroom apartment in east Petaluma with two other women. The three women, all in their 50s, pay about $933 each for rent and utilities, with one of them sleeping in the living room.

“I can’t touch property here,” she said. “If I were to stay, I would stay in Petaluma. I love the west side. There are some beautiful homes there but I just can’t touch the real estate.”

She said she’s going up to Oregon in a couple of weeks to look as some towns there. “I just feel crunched in California,” she said. “I’ve hung on through a big recession, then this. I’m just grateful I’m not homeless.”

Another Press Democrat reader said he and his fiancée are renters with enough money for a monthly mortgage payment but not for a big down payment.

Aaron, who asked that his last name not be published, works for a local wine supplier and his fiancée is a local schoolteacher. He said they’re hoping to be able to put 10% down to buy a house, though that would require saving $70,000.

“At our current income, that’ll take five to 10 years at least,” he said in an email. “We are hoping that the market will start to come down as new construction from the fires starts to come on the market.”

David Rendino of Re/Max Marketplace said he sympathizes with those who pray for the housing market to collapse. “We see a lot of people rooting for that. That’s really sad,” Rendino said of the pricey local housing sector.

Ward, who works as a sales and marketing manager for Sonoma Canopy Tours, said he feels bad for hoping for a complete collapse of the local housing market. He knows that many homeowners would suffer.

“I hate to be that guy that’s hoping for that to happen,” he said. “But at the same time it’s my only way out. It’s the only way that I can have a family here.”