Real estate experts are predicting that home prices will continue to go up in the Sonoma Valley in 2019, though at a slower pace than seen this year.
Rising interest rates are one of the primary factors, as well as the fact that homes are taking longer to sell. For these reasons, local real estate agent Tracy Reynes said she expects prices to increase “perhaps only 3 to 4 percent in 2019 as opposed to the double digits we’ve experienced over the past few years.”
In November of this year, average home prices in the Valley zoomed 17 percent compared with November 2017, to $1.3 million, Reynes said. The number of homes on the market in the Valley increased 8.5 percent in the Sonoma Valley this November compared with last November.
“The market seems to be heading toward a traditionally balanced state – homes are sitting on the market longer, even when they’re priced well and in great condition,” Reynes said. “We are seeing much fewer multiple offer situations.”
Robert Eyler, a professor of economics at Sonoma State University, seemed to share Reynes’ point of view.
“The amount of inventory is increasing, so it’s supply and demand,” Eyler said. “When the number of houses available increases, it has a detrimental effect on prices.”
There are about 3.8 months of inventory on the market in the Sonoma Valley. This means that if no new homes were to come on the market, it would take 3.8 months for all the homes currently on the market to sell.
In a normal, balanced market, there’s about five months’ worth of inventory on the market. Less inventory than that favors sellers.
“We are still in a seller’s market for most price points, although this is trending toward a balanced market,” said Reynes. As of Dec. 18, there were 86 properties on the market in the Valley.
Sonoma Valley real estate agent David Kerr said he, too, expected that prices will continue to rise, “but at a much slower rate next year.”
The Terra Firma Global Partners agent said he expects there also will be fewer sales compared with this year.
“The rise in interest rates will play a major role in affordability and how much and how fast prices rise,” Kerr said.
The Federal Reserve Bank raised its benchmark interest rate in December for the fourth time this year. While the Fed does not directly control mortgage interest rates, lending institutions typically raise their rates in response to a Fed rate hike.
Interest rates for 30-year mortgage loans are currently “creeping up on 5 percent,” Eyler noted.
Interest rates vary depending on a person’s credit rating and other factors.
To illustrate the effect of the interest rate on homebuyers, if you use a median price of $1 million and assume a 20 percent down payment, you have an $800,000 mortgage. So a 1 percent raise in interest rates from 4 to 5 percent is going to cost the homeowner $666 more per month.
This would mean that the homebuyer likely couldn’t afford as expensive a house, and this could lead to slower appreciation.
On the other hand, Eyler said, rising interest rates could possibly lead to an uptick in sales, at least temporarily.
“One could make the case that rising interest rates could lead to a busier market, because people would want to get a relatively low interest rate” before rates go up again, the professor said.