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Home prices in Bay Area jump 6% despite rising mortgage costs

Buyers in a scarce market “are getting accustomed to those higher interest rates”

Home prices across Bay Area jump 6% as home sales plunge on rising interest rates
(Illustration by The Real Deal with Getty)

Mortgage rates have risen. Home sales have fallen. And prices of houses in the Bay Area and California have gone up more than 5 percent. 

While interest rates peaked at 7.8 percent in late October, home sales across the Golden State fell 11.9 percent from a year ago, the San Jose Mercury News reported, citing new figures from the California Association of Realtors.

Meanwhile, the cost of a typical home in the Bay Area rose 5.7 percent during the period to $1.27 million. 

At the same time, the median price of a California home rose 5.3 percent to $840,360, according to the Realtors report, while overall number of home sales fell 27.2 percent.

Even with slowing sales, most buyers aren’t pulling out of the market just because of interest rates, brokers say. The declining sales point more to a lack of inventory.

Home prices across Bay Area jump 6% as home sales plunge on rising interest rates
Jim Hamilton, president of the Silicon Valley Association of Realtors (Compass)

Buyers “are getting accustomed to those higher interest rates,” Jim Hamilton, president of the Silicon Valley Association of Realtors, told the Mercury News. “It’s a pretty dramatic jump, but it didn’t happen overnight either.”

Interest rates peaked at 7.79 percent in the last week of October, the highest rate in 20 years.  Since then, rates have slipped to 7.44 percent.

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After 14 months of decline, prices began moving up again in August. In the nine-county Bay Area, San Mateo County had the highest median home price at $2.1 million, while Solano County had the lowest at $620,000.

Most sellers don’t want to give up cheap mortgages and buy at rates two or three times higher than what they’re now paying, agents say.

With fewer homeowners moving and marketing their homes, buyers now compete for fewer properties. And that drives up prices, a trend likely to continue through New Year’s.

Price-savvy buyers may also be putting their house hunts on hold.

Home prices across Bay Area jump 6% as home sales plunge on rising interest rates
Kumi Hodge, a real estate agent based in San Ramon (Kumi the Realtor)

For every 1 percent increase in rates, buyers tend to lose 10 percent of their purchasing power, according to agents. A buyer that could afford a $1 million home in January, when rates were 6.4 percent, might now be only able to afford a home worth $845,000.

“If there’s not a need for more space, or relocating based on work, then people are sitting tight and waiting to see what happens with rates,” Kumi Hodge, a residential agent based in San Ramon, told the Mercury News.

— Dana Bartholomew

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Housing MarketInterest RatesMortgage Rates