Mortgage interest rates topped 6% this month for the first time since the Great Recession and continue to climb, cooling demand to buy homes in the expensive Bay Area real estate market.
The average interest rate on a 30-year fixed-rate mortgage hit 6.29% on Thursday, a figure that has doubled since January as the Federal Reserve raises interest rates in an attempt to tame inflation.
The surge in mortgage rates that began in April ended a period of historically low rates that helped fuel competition and house prices in the region to astronomical levels. Mortgage rate hikes have eroded a significant portion of buyers’ purchasing power in a region where house prices continue to rise, albeit much more slowly.
For example, a buyer betting 20% to buy a home for $1.7 million — the median sale price in San Francisco in August — would pay about $10,500 in monthly payments under a fixed-rate mortgage of 30 years set at 6.29%, according to a Redfin calculator.
That same home purchase would have cost $7,800 at the start of the year when the average mortgage rate was half of what it is now. It reflects an increase of 34%.
“Buyers are kind of sitting on the sidelines waiting to see what happens,” said mortgage broker Jim Wilson, president of Walnut Creek-based Preferred Mortgage, Inc..
Mortgage applications over the past three months have fallen 90%, said Wilson, who predicted lower home prices over the next six months. And while it’s become more common to see Bay Area sellers lower their asking prices, those cuts often aren’t enough to balance the impact of soaring mortgage rates.
“Sellers are going to have to be prepared to lower their prices until they find someone who is going to be able to afford it,” Wilson said.
Average mortgage rates have increased by one percentage point since mid-August. According to the California Association of Realtors, rates fell between late June and early August, leading to a modest monthly increase in home sales and prices.
Home sales in the Bay Area are down 29% from a year ago, a trend that is expected to continue throughout the year as rates continue to climb, according to the agents’ association. state real estate.
The contrast in demand is stark from last year’s frenetic market, a period marked by bidding wars and a 20% year-over-year growth in house prices. Now, property listings typically generate fewer offers and stay on the market longer.
In Contra Costa County, for example, the median number of days real estate listings stay on the market more than doubled to 18 days from eight days in August 2021.
Rising interest rates are also hitting high-income buyers in the region. No place in the country has seen a bigger drop in luxury home sales than the Bay Area, according to a Redfin report.
Year-over-year sales of luxury homes, which Redfin defined as homes “estimated to be in the top 5% based on market value,” fell significantly in Oakland (-64% ), San Jose (-60%) and San Francisco (-50%).
“High-end home hunters are shocked when they see the impact of rising mortgage rates on paper,” Redfin economist Daryl Fairweather said in the report. “For a luxury buyer, a higher interest rate can equate to a monthly housing bill that costs thousands of dollars more. … Luxury goods are often the first to be cut when uncertain times force people to re-examine their finances.”
Ricardo Cano is a writer for the San Francisco Chronicle. Email: [email protected]: @ByRicardoCano