The “lock-in effect” that keeps homeowners with low interest rates from selling and buying another property with higher rates applies to Bay Area residential markets more anywhere in the U.S.
The gap of several points between a current 30-year fixed mortgage — around 7 percent — and the historically low run that ended with the U.S. Federal Reserve’s hikes that started two years ago has chilled the U.S. residential market overall, the San Francisco Chronicle reports.
The toll came to 1.3 million fewer home sales with fixed mortgages from mid-2022 through 2023 compared with what would have occurred in the era of rates in the range of 3 percent to 4 percent, according to analysis by the Federal Housing Finance Agency.
The numbers for local markets: 20,000 fewer sales in San Francisco, and 9,000 fewer in San Jose.
The federal agency’s study considered a San Francisco metro market that included Oakland and Fremont, finding it had one of the lowest average mortgage rates for homeowners, at 3.56 percent. That’s about half the current 7.17 percent average rate a homebuyer would get — a gap of 3.61 percentage points, highest in the U.S.
The second biggest gap making a lock-in effect came in the San Jose metro market, at 3.68 percentage points.
The lock-in effect has apparently been a factor in both markets for some time — the study found that homeowners in the San Francisco and San Jose metro markets also had the lowest average rates at the end of 2023.
The matter of several percentage points is magnified by the relatively high prices for homes in the Bay Area. A homeowner with a home priced around the average in the San Francisco metro market who has a fixed-rate mortgage around 3 percent would pay about $1,100 more a month with borrowing costs in the current range. San Jose topped San Francisco by that measure, with the added cost of higher interest rates coming to around $1,200 a month, according to the study.