Spotlight on Housing: Sonoma is pricey for many, but cheap for others

The recipe for a housing crisis has three main ingredients: supply, demand and affordability. While the number of new housing starts in Sonoma Valley has decreased over the past decade, and demand for the limited housing available in ZIP code 95476 has increased, many local experts agree that it is affordability in Sonoma that is at the crux of the city's current housing crisis.

In simple terms, household income determines housing affordability. And incomes in Sonoma have stayed relatively flat over the past decade while home prices and rents have risen dramatically.

The heart of the housing crisis is stark and obvious. The typical Sonoma Valley family does not earn enough income to qualify for a mortgage loan on the typical Sonoma Valley home.

The Index-Tribune sat down with four local real estate agents – who, between them, worked with more than a hundred buyers last year – to get a sense of who is buying Sonoma's limited real estate stock, what they are saying about prices here and what the future might hold.

Priced out of the market

Last year, Compass real estate agent Matt Sevenau was trying to help two teachers move to Sonoma because one set of parents lived in town.

'We were all trying so hard to figure out how to get them a place in Sonoma,' he said. 'Their max budget was $600,000 and we just couldn't find them anything that didn't need a ton of work.'

They couple found a move-in ready house they loved in Petaluma… and then decided to teach there instead.

'So we just lost two really good teachers,' said Sevenau, who grew up in Sonoma and is currently raising his children here. 'How do we have a healthy community if we don't even have our teachers here to teach our children? And the same holds true for firefighters and police officers and too many others.'

Sevenau has three clients right now who are local renters looking to buy.

'Their max price is $700,000 and it's really, really hard,' he said. 'They'll see a $600,000 place and hate it. Or they love it but then it's gone. We'll get them into something, but it might be smaller than they'd hoped or need work. As their agent, it's my job to get them the best deal out there but there is only so much I can do.'

The tough road from renting to owning

The group most negatively impacted by the affordability crisis in Sonoma are current renters who seek to become first time homebuyers.

If you didn't get in early, transitioning from renting to owning has become an increasingly impossible feat in Sonoma, says Sevenau.

According to data analysts at the real estate company RedFin, the median sale price of a house in Sonoma Valley has increased from $410,000 in early 2010 to $770,000 in early 2020. This week there were 124 houses on the market in the Sonoma ZIP code with a median listing price of $925,000, according to Realtor.com.

Conventional wisdom says that the cost of housing should be less than a third of one's income. Even if a couple could put 20 percent down, to afford a mortgage on a $925,000 home in Sonoma, monthly mortgage payments would be $3,350 (at 3.51 APR), requiring an annual salary of at least $120,000 using that one-third formula. And that's if a couple can afford the $180,000 down payment.

'[The math is] brutal,' said Sevenau.

Typically, people will rent before they buy but if rents are high, then it becomes harder for a households to save for a down payment.

'It's really hard to scrape together that kind of down payment,' said Compass real estate agent Tracy Reynes. 'It's a huge, huge commitment financially.'

'Once you're in, then you're like, OK, I'm in. I made it,' said Sevenau. 'It's the renters who are getting priced out and leaving. They are thinking, 'instead of renting here, why don't I move over there and buy?' So we're losing more of the middle income rental community. Good people who can't afford to buy here.'

Other nearby towns offer a better value

Zillow calculates a median 'Home Value Index,' which includes both houses for sale and not on the market. It lists the 2019 ZHVI for the Sonoma ZIP code as $763,000, Napa as $678,043. Petaluma as $650,000 and Santa Rosa as $533,000.

Not factored into that calculation is the fact that Sonoma houses are among the smallest in the county, according to MLS — with a median size of 1,532 square feet — compared to 1,881 square feet in Penngrove, 1,864 in Windsor and 1,745 in Petaluma.

Last weekend, Century 21 real estate agent Marguerita Castanera showed around a local couple who have been renting but just got approved for a loan of up to $550,000. She showed them all four of the two-bedroom, one-bathroom houses that were for sale in the Springs at that price point, and all were fixer-uppers.

'They were frustrated and ended up looking in Santa Rosa, where there were dozens more choices,' she said.

Lack of inventory is definitely part of the problem, the agents agree.

In 2019, there were 384 home sales in the Sonoma ZIP code versus 2,014 in Santa Rosa, according to MLS.

No more young families

From 2000 to 2018 in Sonoma, only two percent of the houses sold in the Sonoma ZIP code were sold to people under 30 years old, according to 2019 data provided by the National Association of Home Builders.

'I can't say that I've ever sold a house to anyone under 30,' said Reynes. 'I can't remember the last time I showed houses to a young family or a client asked me about the schools here.'

Century 21 specializes in corporate relocations – which typically involve high-income employees in their 30s and 40s – but agent Mara Khan said that Sonoma is a hard place to relocate to.

'I do a lot of relocations and they just don't choose here,' Kahn said. They look around Sonoma and love it but get discouraged and buy someplace else.'

'I am seeing young couples leaving because of new jobs but I am not seeing buyers moving here for a job,' said Castanera.

'There just aren't enough jobs in Sonoma that pay enough to have a corporate relocation company move them here,' added Sevenau.

'So the [high-paying] jobs are elsewhere and traffic is getting worse,' says Wine Country Real Estate agent Mara Khan. 'If you can't work from home, Sonoma is a tough place to live.'

Khan worked with a client recently who was relocating to take a job with Sonoma Brands.

'Both he and his wife had really good jobs but they gave up on buying in Sonoma because they could get so much more anyplace else,' she said.

The statistics bear this out. The median three-bedroom house in Sonoma sold for $890,000 in 2019 while the same house in Windsor cost $602,000, in Rohnert Park $572,000 and on the east side of Petaluma, $625,000.

While Sonoma used to be filled with young families, declining enrollment in the local schools underscores the fact that this is no longer the case. Khan said she has watched most streets in town transition from being full of families to being dark on weeknights, occupied only occasionally on the weekends.

Who is buying

The irony is that while real estate in Sonoma is unaffordable for locals, it is a relative bargain for buyers from elsewhere in the Bay Area.

'The community doesn't want to hear this, but Sonoma is still a bargain compared to other places,' said Reynes. She said around 90 percent of her buyers are not from Sonoma, they're from the South Bay, San Francisco, Marin.

Sevenau said that he wishes more of his days were spent helping locals get into their first home, but instead, many of his transactions are weekenders from the South Bay who are 'excited about what can get for their money here.'

'If somebody bought in on the peninsula 30 years ago, it was like they won the lottery,' said Sevenau. 'They experienced the greatest housing market in the last 30 years probably anywhere in the world.'

Zillow's Home Value Index for the tony South Bay town of Los Gatos is $1,824,128, more than double Sonoma's $763,000. Saratoga's ZHVI is $2,453,600.

'People who come up who have just sold their places for $3 to 5 million and they're like, wow, look what I can get in Sonoma,' said Sevenau. 'And they can easily pay all cash for a $1.5 to $2 million house.'

'Sonoma is an amazingly desirable place to own a house,' said Reynes. 'It's the weather, it's the charm and the community feeling, but it is also the fact that Sonoma is still a great value compared to where they're coming from. They still don't want to overpay but the fact is they have more money to spend than most of the population that already lives here.'

Both Kahn and Reynes said the bulk of their business is clients buying a second home either to retire to now, or more frequently, to enjoy on the weekends with future plans to move up full time.

Crystal ball

Sevenau thinks that if interest rates stay low, Sonoma will experience a normal rolling market. The only factors that could change that would be a recession, a rise in interest rates or if somehow the cost of building in Sonoma drops.

Khan agrees that low interest rates are at least helping to make home ownership more possible.

'My own first mortgage was 12 percent,' she said. 'The fact that interest rates are now at 3.51 percent is the only thing that is helping local people get into the market.'

Sevenau spends a lot of time thinking about how Sonoma's housing market has changed and what those changes mean to Sonoma.

'I wish I was showing more affordable houses to my friends and my neighbors,' said Sevenau. 'We need to ask ourselves who do we want to be, what do we want Sonoma to be.'

Email Lorna at lorna.sheridan@sonomanews.com.