Rising interest rates make Bay Area even less affordable

Few homes for sale, high prices, fierce bidding wars — and now higher interest rates — have seeped into the Bay Area real estate market.

Rising interest rates have pushed buyers’ monthly payments up nearly 7% in the past month, and more increases may be on the way.

The Federal Reserve signaled this week that it may raise the loan funds target rate at its March meeting. The average rate for a 30-year fixed mortgage fell from 3.05% on December 23 to 3.55% on January 27, approaching its highest level during the COVID-19 pandemic.

But local real estate professionals say the impact of higher rates could be muted for many people in the Bay Area – where most buyers are wealthier, have higher incomes and can fit into the increase in their budget. “Most of our borrowers in the Bay Area are extremely well off,” said Jay Voorhees, owner of JVM Lending in Walnut Creek. “They are extremely skilled.”

Rising interest rates could cost a borrower $150 more per month on a $500,000 loan — not a onerous amount for buyers considering a multimillion-dollar home, Voorhees said. The median sale price for single-family homes in the nine-country region topped $1 million last year and topped $1.5 million in San Francisco, Santa Clara and San Mateo counties.

The Bay Area’s high prices mean almost all buyers in the area must qualify for “giant loans” – with amounts exceeding $970,800 – which have stricter financial requirements but generally carry higher interest rates. low. Jumbo loans typically have interest rates about half a percentage point lower than a standard mortgage.

Yet soaring interest rates and rising home prices in the Bay Area are making the area even less affordable for many families. In September, only 1 in 5 Bay Area families could afford to buy the single-family home at the area’s median price, according to the California Association of Realtors. Ten years ago, about 45% of families could make a purchase.

The average monthly payment for a new mortgage on a median-priced home in San Francisco and the East Bay increased by $924 per month between January and December 2021. In the San Jose metro area, average payments for a median-priced home soared to $1,265 per month, according to an analysis by Zillow.

In San Francisco and the East Bay, Zillow estimates the value of a typical home increased 17% in 2021, from $1.17 million to $1.37 million. In Santa Clara County, the median home value also increased 17%, from $1.31 million to $1.54 million.

Zillow senior economist Jeff Tucker said the interest rate hike came more suddenly than many expected. U.S. home prices also hit record highs last year, pushed by low inventory of homes for sale and intense demand from first-time buyers and families looking for more space to fit in. remote working hours.

Higher prices and rising interest rates, he said, are “just a punch to buyers.”

Tucker noted that interest rates were still near record highs. The uncertainty of future rate hikes could push more buyers into the market. “Home buyers also don’t know where the rates are going,” he said.

Agents say the pandemic residential real estate boom in the Bay Area has followed big stock market gains, boosting incomes for tech professionals. The expected rise in interest rates rattled stocks and clouded home-buying plans for professionals who had relied on grants and corporate equity programs to fund part of their purchases.

Demand remains strong and buyers’ choices have rarely been fewer.

Cupertino agent Ramesh Rao of Coldwell Banker said South Bay buyers had mostly ignored rising borrowing costs. The market continues to sizzle, he said, and shoppers want to head to popular South Bay towns.

One of Rao’s clients offered $1.55 million for a modest home in San Jose, well above the list price of $1.15 million. But 38 buyers bid on the home and the winning price came in at $1.65 million, he said.

“I can’t even describe what’s going on,” Rao said. “Just amazing.”

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