Sonoma County homebuyers are taking a break from purchase offers, waiting for interest rates to cool

The once-booming real estate market from the past two years is slowing down as rising inflation and interest rates have potential homebuyers pressing pause on new offers for houses in Sonoma County.

Many factors -- from the series of interest rate hikes from the Fed to a decrease in inventory of affordable homes -- have led home buyers to reevaluate their housing priorities, experts and buyers tell The Press Democrat.

Brad Wilkinson, a real estate agent and owner of BW & Co., said entry-level buyers are leading the way in slowing down purchases. Rising payments are causing them to wait for things to calm down.

At the same time, he said, sellers know their homes are in high demand and want to get maximum prices from any transaction.

“For the last three years, everybody was used to getting whatever they want when they sell their house,” Wilkinson said.

“We’re seeing this weird limbo where the sellers don’t want to drastically lower their price... but at the same time, the buyers are like, ‘Why would we pay you over asking (price) just because people have for the last three years?’”

Carmen Cervantes, another Sonoma County real estate agent with NextHome Wine Country Premier, said many buyers are stepping back and taking a break because rates and prices have gone up so much.

“Things started transitioning (mid-summer) as (the market) started transitioning due to interest rates starting to increase,” Cervantes said. “As we’ve gone now into fall, some listings and some sellers are still ambitious about pricing ... when it’s not realistic.”

According to the city profiles compiled by the Sonoma County Economic Development Board, Santa Rosa saw the most home sales in 2021 with 2,440 homes sold with the housing vacancy rate at 6.1%.

A study conducted by the Inspection Support Network, a Seattle-based IT company that specializes in programming for home inspectors, found that 83% of all home sales in 2021 were for single-family homes, compared to the national percentage of 75.9%.

Data from real estate website Redfin shows in October 2022, Sonoma County home prices were up 5.9% with a median sales price of $767,500 vs. the same period in 2021.

But it also reported the number of homes sold in October as only 360. Last year during this month, 590 homes were sold.

Homes were on the market for a median of 40 days, compared to 36 days last year.

Rob Eyler, a Sonoma State University economics professor, said the trends reflect slowing demand.

The industry, he added, a classic situation with buyers twisting away from a relatively hot housing market where homes would sell within seven to 10 days.

“Days on market have gone up, and that means inventory on the market generally goes up in the short term and then some folks pull their homes off the market, and it’s hard to watch that balancing act in real time,” he said.

“But what that also means is that what people are asking for their homes are going to start to slow down, and that normally leads to sales prices being reduced, which is the focal data point that we look at in the housing market.”

Eyler said because interest rates only recently started to rise within the past six months, 2023 is going to bring a tougher housing market than what has been seen the last three years.

He also said that while no economist is predicting a similar situation to what happened with the 2008 housing crisis, buyers will start to see prices go down slightly as a reaction to such trends as an uncertain global economy and changing job market.

“I think we’re going to take a little bit of a pause on the demand side in 2023 in such a way that we’re probably going to see prices slip a little bit,” Eyler said.

“The bottom line is that whenever you have an up cycle like this, you have to assume you’re going to have a down cycle, and the issue now is how hard of a contraction are we going to see?”

Wilkinson said buyers are being “patiently aggressive” as they navigate the current housing market and will continue with that mindset as 2023 approaches. He also said sellers could start scaling back slightly on home prices while still trying to get the most out of their home value.

“Going into the first quarter, my personal crystal ball answer, if not an educated guess, is that we’re still going to see the Fed raise interest rates likely to combat inflation, which is going to limit the aggressiveness of buyers, especially the ones buying with a loan,” he said.

“I think that is also going to start having sellers realize they are going to have to bring their price down, and I think that’s going to bring the market down slightly.”

Cervantes said that the industry will still see some growth in the housing market in 2023, but not to the level that was seen in the past few years. She said it will be essential for her clients, both buyers and sellers, to take the time to educate themselves on the state of the market and on potential loan lenders.

“If and when interest rates get lower, we’ll start having those buyers on the backburner start to come back,” she said. “I think there’s going to be some great home purchase opportunities for buyers, but you just have to be ready and prepared.”

Sara Edwards is the small business and consumer reporter for The Press Democrat. You can reach her at 707-521-5487 or sara.edwards@pressdemocrat.com. Follow her on Twitter @sedwards380.