‘Double whammy’ of rising interest rates, prices hits Bay Area: Compass

Monthly payments for recent buyers up 75% over last year in some spots

San Francisco /
May.May 03, 2022 03:06 PM
Home illustration
(iStock/Illustration by Kevin Rebong for The Real Deal)

Bay Area home buyers are being hit by a “double whammy” of higher prices and rapiding rising interest rates, according to Compass Chief Market Analyst Patrick Carlisle, raising median monthly payments over 50% in just one year and further eroding affordability in the region.

Using yet-to-be-released data, Compass will show in an upcoming report that historically low interest rates over the last few years “effectively subsidized” rising home prices, Carlisle said via email. The low rates kept the median monthly Bay Area housing payment around the $4,000 mark for a three-bedroom home since 2018.

With interest rates up from about 3 percent 12 months ago to around 5 percent today–and a steady run of price increases over the same period–the median monthly payment was $6,275 in March of this year, assuming a 20% down payment and a 30-year-fixed conforming loan.

In some East Bay markets, median monthly payments for a three-bedroom home are up 75% in just the last year, according to Compass data from its April market reports. In San Francisco and the Peninsula, where home prices were higher to begin with, monthly payments are up 35% to 45%. Median monthly payments in Marin are up about 60%, according to the analysis.

The monthly payment amount is perhaps the most meaningful calculation for buyers, Carlisle said, which is why he added the median cost analysis to Compass’ monthly reports recently.

“People and the media fixate on prices because they’re easy to grasp and dramatic, easy to calculate ups and downs, but for most people, what really matters is the monthly housing cost (whether rent or home payment),” he said.

“Work from home and people’s desire for more space and less population density (due to pandemic issues) supercharged the East Bay markets,” Carlisle said. “Also, to someone moving from SF/Silicon Valley to the East Bay, the home prices there look ‘cheap,’ which fosters a willingness to overbid prices.”

Carlisle said he expects homes priced at the lower end of the spectrum in all markets to feel the bite of rising monthly costs first, and that vacation-home locations may be “deeply affected” since “no one needs to buy a second home.” So far, residential agents have reported no signs of a slow down in the area, due to a continued lack of inventory and a pool of wealthy buyers who are affected more by the stock market than interest rates.

Yet what starts out impacting home buying decisions for those on the lower end may work its way up the market, Carlisle predicted, as media reports about rising costs could impact perceptions across the region, even into the highest income levels.

“Even a billionaire’s psychology on buying a home shifts if they are reading articles about dramatically changing market dynamics,” he said.





    Related Articles

    arrow_forward_ios
    (iStock/Illustration by Kevin Rebong for The Real Deal)
    Federal appeals court puts landlords on hook for evicted tenants’ relocation costs
    Federal appeals court puts landlords on hook for evicted tenants’ relocation costs
    Amit Goel and 22330 Main Street, Hayward (Google Maps, Hillsdale Investment Management Inc.)
    314 resi units approved for site of failed office project in Hayward
    314 resi units approved for site of failed office project in Hayward
    70 South Park, San Francisco, CA (70SouthPark)
    ‘Gallery House’ aims for South Park record with $12M ask
    ‘Gallery House’ aims for South Park record with $12M ask
    San Francisco Mayor London Breed (Getty, iStock)
    San Francisco to consider cutting affordable housing demands to spur construction
    San Francisco to consider cutting affordable housing demands to spur construction
    Residential Real Estate, San Francisco, Bay Area
    Silicon Valley’s return-to-office trend tied to jump in San Jose resi rents
    Silicon Valley’s return-to-office trend tied to jump in San Jose resi rents
    Prologis' Hamid Moghadam, Cedar Fair's Richard A. Zimmerman and California’s Great America at 4701 Great America Pkwy. (Prologis, Cedar Fair, Oleg Alexandrov/CC BY-SA 4.0/via Wikimedia Commons)
    Prologis buys 112-acre theme park in Santa Clara
    Prologis buys 112-acre theme park in Santa Clara
    99 Southgate Avenue and Kimco's Conor Flynn (SGPA Architecture and Planning, Kimco)
    Developer plans to add resi to Daly City retail complex
    Developer plans to add resi to Daly City retail complex
    2855 Pacific Avenue (Realtor, iStock)
    Pacific Heights notches top price in SF this year
    Pacific Heights notches top price in SF this year
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...