Laura and Anthony Salvato wanted to buy a home in Santa Rosa before their 4-year-old daughter started kindergarten.
However, the couple didn’t know what they could afford during a time of rising interest rates and home prices. The jump in prices was linked to a housing shortage exacerbated by last fall’s devastating North Bay wildfires.
“Is this like the worst time to be looking?” Laura Salvato recalled asking herself.
However, less than two months after finding a real estate agent and a lender, the couple completed the purchase of a house in Rincon Valley. The Salvatos, who are in their early 30s, moved in with their two young daughters in late June.
The three-bedroom, two-bath home comes with a $3,900 monthly payment, including almost $400 for mortgage insurance, a requirement with FHA loans. The payment is substantial, Laura Salvato acknowledged, but rents for similar houses also have grown costly in Sonoma County.
Buying the home allowed the couple to fix their housing costs and provide a way for 4-year-old Grace and 22-month-old Emma to eventually “grow up in one school.”
“I just wanted to get in while we could afford it,” their mother said.
Home prices and mortgage interest rates have risen for the past two years without much noticeable impact on the Sonoma County housing market.
But real estate agents and lenders maintain that in the past few months the market has shifted, with more homes available for sale and more sellers forced to cut prices to attract buyers. Those changes may have helped the Salvatos quickly find and purchase a home, according to their lender and real estate agent.
The shifting conditions appear to provide not only opportunities but also challenges. Sellers are facing headwinds on pricing, and many buyers nonetheless find the monthly cost of owning a home has jumped significantly.
Frank Nothaft, chief economist for Irvine-based data service CoreLogic, estimated that prices for entry-level houses in California have risen about 10 percent over the past year. When factoring in the increase in mortgage rates, he said, the monthly loan payment for buying the same home in theory would have jumped about 20 percent in 12 months.
“That just underscores the challenges for an entry-level home buyer in this market,” Nothaft said.
And mortgage rates are expected to slowly keep rising. CoreLogic predicts that by the end of 2019, the rates will climb about a half percent to 5.1 percent.
“That would be the highest mortgage rates in a decade,” Nothaft said.
Last week, the average interest rate in the U.S. for a 30-year fixed mortgage rose to 4.6 percent, according to the federal government-sponsored enterprise Freddie Mac. The rate has climbed more than a half-percentage point in the past year and more than 1 percent since August 2016, when it was 3.44 percent, among the lowest mortgage rates of the last 40 years. Rising rates don’t just make it harder for first-time buyers to qualify for mortgages. The higher cost of borrowing also is curtailing the loan refinance business and causing more homeowners to hold onto their properties rather than sell and give up low-rate loans.
In the past decade, the county’s housing market has weathered a historic crash in home prices and the most destructive wildfire in state history.