Business

Bay Area homebuyers left behind by rising mortgage interest rates

Mortgage rates rose above 6% this month for the first time since the Great Recession and continue to rise, cooling demand for homes in the expensive Bay Area housing market.

The average rate for a 30-year mortgage reached 6.29% on Thursday, a figure that has doubled since January as the Federal Reserve raises interest rates to curb inflation.

The spike in mortgage rates that started in April ended a period of historically low rates that helped drive competition and house prices in the region to astronomical levels. Mortgage rate hikes have taken away a significant portion of buyers’ purchasing power in a region where house prices are still rising, albeit much more slowly.

For example, a buyer who puts down 20% to buy a home for $1.7 million — San Francisco’s average sales price in August — would say, according to a Redfin calculator.

Read:Federal Reserve May Have Gone Too Far As S&P 500 Tests Bear Market Low

That same home purchase would have cost $7,800 at the start of the year, when the average mortgage rate was half what it is today. It reflects a 34% increase.

“Buyers are kind of sitting on the sidelines waiting to see what’s going on,” said mortgage broker Jim Wilson, president of Walnut Creek-based Preferred Mortgage, Inc.

Mortgage applications in the past three months are down 90%, said Wilson, predicting a decline in home prices over the next six months. And while it’s increasingly common for sellers in the Bay Area to cut their asking prices, those cuts are often not enough to offset the impact of rising mortgage rates.

“Sellers will have to be willing to lower their prices until they find someone who can afford it,” Wilson said.

Average mortgage interest rates have risen by one percentage point since mid-August. Rates climbed downward between late June and early August, according to the California Association of Realtors, resulting in modest monthly increases in home sales and prices.

Bay Area home sales are down 29% from last year, a trend likely to continue through the rest of the year as rates continue to rise, according to the State Brokers Association.

Read:Judge outlines holes in DOJ suit to stop UnitedHealth deal

Previous post
Man rescued by Oak Island Water Rescue after boat capsizes several hundred yards out
Next post
Macron opens France’s first offshore windfarm amid European energy crisis