A Perspective on Mortgage Rates

April 7, 2023

It’s an old saying in the residential real estate industry and we are being reminded of it now: in home buying it’s not the cost of the home—it’s the cost of the money.

The average 30-year fixed mortgage rate as of April 7 was 7.09% — sticker shock from the 2021 average of 2.96% and unpalatable compared with the 2022 average of 5.34%, especially when factoring this in: for every 1% increase in a residential mortgage rate, it has the same effect as home prices rising by 10%. In dollar terms, that means a nice family-style home for sale in Sonoma County a year ago at $750,000 would be the equivalent price today of around $878,500. For many people, that is a deal killer.

Welcome to the Sonoma County Properties news and blog post pages of our new website! The goal here is provide insight and information for home buyers and sellers, and for others that invest in or occupy commercial property, vineyards and country properties to do what they love most about in the lands we call home.

In this post, we wanted to give readers a perspective on the most talked-about subject in our industry in the last 16 months – the rapid escalation of interest rates, and how that is impacting real estate sales in our community.

As we enter the spring selling season, there are indications that home buyers are beginning to adjust to higher – and dare we say, more normalized, residential borrowing rates. After all, the rates following the pandemic—and really, the entire decade from 2013 to 2022, were well below “average” mortgage rates. How so, you ask?

Mortgage rate trends over time (Source: Freddie Mac)

Here’s how average 30-year rates have changed from year-to-year over the past five decades.

1974 to 1983 (10 years) = 11.64%

1984 to 1993 (10 years) = 10.24%

1994 to 2003 (10 years) = 7.35%

2004 to 2013 (10 years) = 5.23%

2014 to 2021 (8 years) = 3.76%

Let’s face it, home borrowers have been spoiled during the last decade. Yet even when rates were higher, homes sold, they were financed and refinance, and homebuilders built and sold new residential communities.

The Fed Funds Rate and Mortgage Rates

As far as we know, there is no clearly defined delta between the Fed Funds Rate, or the target interest rate set by the Federal Open Market Committee (FOMC) that sets the rates that banks charge each other for intra-bank loans and related credit facilities, and retail mortgage rates. However, historically speaking, the difference ranges from around 2% to 4%. In 2000, for example, when the average 30-year fixed conforming mortgage was 8.05%, the Fed Funds Rate moved around from 5.61% in early January of that year to 6.53% in the fourth quarter. In 2004, when the new home sales market was as good as it has ever been and the average mortgage rate was 5.84%, the Fed Funds Rate floated around 1.00%.

As of this writing, the Fed Runds Rate is running between 4.75% and 5%, so with the current average mortgage rate at 7.09%, we are within that historical norm.

Fast forward to the decade from 2010 to 2020 and before the pandemic, and as the main vehicle for restarting the economy after the Great Financial Crisis, Fed Funds Rates went from the low 2%s to 1.09% in early March, 2020, just before the pandemic was declared. During that span, retail mortgage rates bounced around the low single digits, and even below 3%s. In recent years the Fed Funds Rate has hovered near zero.

Which brings is to the here and now: even if the market is slow now, and it is, there is an ongoing supply-constrained market that may actually get worse.

The reason supply in the resale market may get worse in the next few years is the number of ultra-low mortgages that were refinanced at or near the bottom in late 2021. We personally have friends with 30-year fixed mortgages at 2.65, 2.75, 2.85 and even some considerable jumbo loans in the low-3s. While these folks should pinch themselves for their good fortune and excellent timing, the vast majority of them will not sell their homes anytime soon, because they can’t – either intellectually or psychologically. Even if income is no issue, the intellectual exercise of paying twice as much for a comparable home is a high hurdle.

Where do we go from here

If we can channel our inner Yoga Berra, who famously said a lot of strange things and other oxymorons, we would write: no one knows the future – it’s too unpredictable. We won’t fill up this space with what economists and other smart people think the Fed will do with its Fed Funds Rate the remainder of 2023, and if, or when, we actually and technically enter a recession. Yet what we will declare is that the housing market will once again normalize, stabilize, with buyers and sellers coming to the proverbial closing table.

And here’s why.

Millennials are surpassing baby boomers in terms of demographic dominance, and they are in their prime for family formation and home buying. They are forming families. They are and will buy homes.

Cities are losing population for the suburbs. Whether it’s remote work or lifestyle choices, smaller cities and suburbs have grown since the onset of the pandemic. Sonoma County has been, and remains poised, to add residents from the greater Bay Area. That means our market has and will have more buyers from other counties in the region and many of them are more affluent and able to pay cash for the homes they are purchasing. Everyone loves an all-cash buyer!

Price appreciation has stalled or stopped in most of the growth markets of the last two years (Boise, Tampa, etc.), but the sky isn’t falling.

In California alone, new construction barely covers the 180,000 new units the state says are needed each year to close the demand/supply deficit. Phoenix is adding roughly 100,000 new residents a year, but not every Californian wants to move to the Arizona.

And builders can’t keep up with that demand. Besides, where we live, there’s not enough of it –land.

Since the Great Recession, there is a cumulative shortage of 1.35 million single-family homes permitted in the 35 largest U.S. housing markets. That is 2.7 years’ worth of permits at the rate of homebuilding at the end of 2021.

In closing, the spring home buying and selling season of 2023 is upon us, and whether the supply that comes to the market is limited to two of the traditional drivers of residential real estate listings – death and divorce, remains to be seen at this writing. Yet in the spirit of spring (Spring Forward!) and otherwise, because you can’t be in real estate and not be at least a little optimistic, this could be the spring of a new beginning, and yes, the first step toward a more active housing market.


Ron represented me twice in recent years on the listing and sale of two investment properties. His vast knowledge and experience in real estate made for trouble free and expedient transactions. Ron’s communication and negotiation skills are top notch. Highlighting Ron’s genial personality, it was a pleasure to have him represent me.

— Glenn S.

Ron was a tremendous help during an extremely difficult transition for me after living in my house for 36 years.  He went far beyond what I expected in a RE Broker by helping to enhance the appeal of my house and by guiding me through all the challenges that came up from selling a rural property.  And he’s just a genuinely nice guy! His calm attentiveness and deep knowledge made the move bearable when I felt like giving up just from exhaustion. On top of that, he helped me acquire my current house which is so perfect for me during this new chapter of my life. A very happy ending!

— Sharon B.

Ron Welsh, the owner/broker of Sonoma County Properties Inc., has been nothing less than an angel in disguise when it came to the sale of my grandmothers property.

When my grandmother died at the age of 103, she left her only asset of a country property in Santa Rosa to her four children in equal shares. These are four senior citizen adults that did not typically see eye to eye. Ron was patient, understanding, unflappable, and made the process extremely easy. His experience in real estate transactions was evident and his experience in dealing with multiple obstreperous parties was clearly unmatched.

Ron kept the family apprised of every step in the process and was successful in selling my grandmothers (rather dilapidated) home in just a few days to the satisfaction of all parties. That was no easy feat.

I would highly recommend Ron and his team in any real estate transaction, whether that be buying or selling a home.

— Kathleen Pozzi

I found Ron to be the consummate professional. He is extremely skilled and accomplished at all phases of the sales process. His hard work and negotiating skills were the deciding factor in closing the sale of our home in less than 90 days at 97% of our asking price. That is a real accomplishment, as our home was priced at the upper end of the market where buyers were far and few between.

I would highly recommend Ron’s services for anybody looking to purchase or sell a home in this area.

— mwerneralsco

We were looking for a unique house with character. Ron took the time to understand our needs and was patient with us as we spent many months looking for the right house. He was always available to answer questions or tour properties, and didn’t push us to commit to something that wasn’t right. Ron was a calm, reassuring presence during our search. He knows both the real estate business and the local market. Ron is an experienced advocate you’ll be glad to have in your corner. He is the Realtor we would recommend to friends and family.

— MF Warren

We were able to hit our target date for listing and Ron had us priced right to get multiple offers within 48 hours. From that we were able to choose a strong buyer and close in under 3 weeks, still in October. What had seemed an impossible dream became our new reality thanks to Ron’s experience and ability to get us connected to the right people and complete our pre-sale tasks. Aside from all this Ron is simply a great person to know and work with. He is hands on (literally helping me tear down a false wall the tenants had erected) and was constantly extending offers to help in any way he can with the contractor and appliance deliveries. I strongly recommend Ron to anyone looking for a top quality real estate experience.

— Kevin E.

Ron has helped our family members buy two homes and sell another. I’ve also recommended him to several friends over the years – something I only do when I really trust someone to take good care of them. Everyone has really enjoyed working with him and they’ve become repeat customers of his now too. He knows Sonoma County so well and has a great mellow personality. except when you need him to really rally for you during price negotiations – the perfect combo you want in a realtor!

— Kelley K.

Ron negotiated our very challenging deal with multiple transacations and deadlines. This was definately the kind of situation the required experience. He went the extra mile to ensure that both our real estate sale and purchase closed on time. This was such a tricky process, I really don’t think it would have happened without Ron there to help us through!

— Nick S.

Ron Welsh, has been our real estate the past few months, He has conducted himself, very professional, has been very sincere in our needs of real estate. Dealing with past agents some were not very reliable, Ron was always on time with appointments. It has been a pleasure working with him.

— David & Linda R.

I’ve had 2 purchase and one sell experiences in my life so far; hands down Ron Welsh / Sonoma County Properties was best real estate experience I’ve had to date.

In the end, I felt like Ron was really on my side, advocating my position at every step. Thanks to him, our project is well on its way and we should have our new home for the next holidays.

— S Lietzke

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