Will Higher Interest Rates Curb the Enthusiasm of the Consumer?
As the Federal Reserve seeks to curb the rate of inflation by escalating interest rates, we will see in the next 6-12 months if they can manage a soft landing for the economy as it tries to abate the runaway costs being experienced in most goods and services where the economic goal is to both raise supply of any particular product or service while retarding demand thereby working towards correcting the current imbalance.
According to the most recent data collected by Compass, a current overview of Sonoma County shows an average sold price per-square-foot (psf) of $582 being paid for a single-family home – 13 percent greater than last year at this time. This climb in values is supported by broader metrics too, as the median sold price for a home has risen to $827,000 – a new all-time high - while the average price paid was confirmed at $1,072,000.
Within the sub-markets of Sonoma County, Sebastopol conquered all other regions as it surged ahead 40 percent from just twelve months earlier registering the average sold value of a single-family home at $711psf. Windsor was no slouch either with prices climbing 31 percent to $517psf while Sonoma captured a 23 percent jump to $884psf. Accelerating 21 percent were both our rugged Sonoma Coastline and the wisdom laden community of Oakmont reporting closing values at $938psf and $444psf, respectively.
Experiencing robust activity, America’s favorite small town - Healdsburg - along with Northeast Santa Rosa accumulated 15 percent gains wrapping up the period at $804psf and 525psf, respectively. Nipping at their heels, Petaluma’s Eastside rallied 13 percent to $525psf while Northwest Santa Rosa ascended 10 percent to $467psf.
Delivering less than double-digit gains, Southwest Santa Rosa touted a nine percent rise to $436psf while Cloverdale heralded in an eight percent improvement to $363psf. The coalesced markets of Cotati and Rohnert Park ended the period at $447psf – a six percent move – while Petaluma’s Westside was found treading water staying just this side of positive compared to a year earlier at $631psf.
Giving a little something back, Southeast Santa Rosa saw the average closing value lose 10 percent to fall to $458psf while, in the cellar this month, the Russian River region saw its wings clipped 17 percent to $569psf.
With regards to escalating real estate prices, the fact that it takes an extended period of time to create new supply, the only effective tool for the Fed is to raise the cost of borrowing to thereby remove the amount of consumers who qualify for mortgages that allow them to complete a home purchase with the design of cooling the demand side of the equation. Unfortunately, every action taken typically causes a reaction or ripple of unintended consequences, like the rising cost of rent. For every consumer that is taken out of the quest for owning a new home they must then return to participating in the rental market, thereby effectively adding more pressure to “For Rent” housing costs. So, when you need a guide to get you to where you want to be, look no further.
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