A steep hike in mortgage interest rates has yet to put a damper on bidding battles for Bay Area homes.
Interest rates exceeded 5 percent for the first time in more than a decade, but there are few signs the increase will lead to a decline in local home prices soon, the San Francisco Chronicle reported.
The average interest rate for a 30-year fixed-rate mortgage hit 5.11 percent, up from 3 percent at the start of the year, as the Federal Reserve tries to tamp down inflation. The interest spike has made Bay Area homes now selling at all-time highs even more expensive.
Real estate experts say that low inventory and a willingness from wealthy buyers to engage in bidding wars will likely keep Bay Area home prices from declining. Cash investors who don’t have to worry about borrowing rates are also keeping prices high.
“As long as we have this super unbalanced inventory situation, (mortgage rates) are unlikely to have a lot of bearing on it,” East Bay Realtor Andrea Gordon of Compass told the newspaper.
Daryl Fairweather, chief economist for Redfin, said there are early signs that demand is slowing. Purchase applications for mortgages are trending downward, she said. Searches for homes for sale in pricey coastal markets, such as the Bay Area and Los Angeles, are also down.
But none of that has translated yet to lower home sale prices.
The median sale price for a home in San Francisco was $1.5 million in March, a 9 percent jump from the prior year, according to the real estate listings site.
Demand in the delta region, one of the Bay Area’s most affordable housing markets, remains fueled by first-time home buyers and teleworkers from San Francisco and San Jose in search of spacious single-family homes.
But despite fewer offers, delta home prices aren’t dipping, said Patrick McCarran, president of the Delta Association of Realtors.
“We’re still seeing competitive offers that are often driving prices up,” McCarran said.
With the rising mortgage rates, buyers prices out of the Bay Area market may head east to more affordable places such as Sacramento, or the Central Valley, real estate agents say.
A buyer who plunked down 20 percent to buy a typical California home that cost $775,000 would pay $3,600 a month at the earlier mortgage rate of 3.11 percent. The same home would cost $4,320 a month at the recent 5.11 percent.
The higher rates are not likely to impact the purchasing power of high-earning home buyers whose wages have kept up with rising inflation, said Chris Mason, an East Bay independent mortgage broker, who hasn’t seen any drops in home buyers seeking pre-approvals for mortgages.
“On the demand side, it is the case that the middle class is getting squeezed the most by the combination of inflation and higher interest rates,” Mason said. “But, for the most part, in the major Bay Area markets, your median income family was never in a position to buy a house, anyways. That ship sailed five years ago.”
[San Francisco Chronicle] – Dana Bartholomew
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