Interest Rates Tempt Savvy Sonoma Buyers

Sonoma Home Affordability Index
Sonoma Home Affordability Index

Sonoma County home prices are at historically affordable levels. Nearly half of the households in the county can afford the median priced home. That compares to only 9 percent of buyers from just a few years ago in 2006 and 2007. Combining the California Affordability Index with historically low interest rates creates an environment that is hard to resist for buyers who pay attention to all the factors that combine to create opportunity. In Sonoma County’s real estate market today, savvy buyers are making offers on homes to avoid both higher prices and higher rates.

Mortgage Payment Chart at 4% Interest
Payments at 4% - $300K home with 20% down

Interest rates at or under 4% are historically unprecedented. Throughout most of the 1990’s and the first decade of this century, 5.5% interest was pretty much rock bottom with rates of 6 and 7% quite common. It doesn’t sound like much of a difference to people who haven’t explored the numbers in detail, but on the purchase of a$300,000 home with 20% down, the difference between 4% and 6% is on the order of $300 per month and $100,000 over the 30 year duration of the loan.

Mortgage - $375,000 purchase at 4% with 20% down
Payments at 4% $375,000 with 20% down

Alternatively, someone who can qualify for that $300,000 purchase at 6% interest might qualify for $375,000 at 4%. I don’t know if you have been tracking listings recently, but that extra $75,000 to spend on a home can get you an extra bedroom or a swimming pool or a big lot or all of these and more.  Whether you are going to save money and buy a smaller home or go big and use up all the loan you qualify for is a personal choice. What isn’t a choice is whether it is smart to buy a house when interest rates are at record low rates.

If you want to buy eventually and are just waiting for prices to creep down a few thousand or even a few tens of thousands of dollars, run the calculations and see if the lower interest rates you can get today are worth more than saving a little on the price. I think you’ll be surprised how much of a discount on a house you would need to balance paying a higher rate.

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