Bay Area homes are less affordable as interest rates rise

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% over the past month, and more increases may be on the way.

The Federal Reserve recently signaled 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 Dec. 23 to 3.55% on Thursday, nearing its highest level during the COVID-19 pandemic.

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 incorporate the increase in their budget.

Jodi Fischer, loan officer at All California Mortgage in Novato, said lenders predict a more balanced housing market is coming soon, “but it won’t necessarily be a buyer’s market, it’ll just be less frenetic.”

In Marin, she said, many people may still have smaller financial portfolios that are impacted by higher interest rates, such as first-time home buyers and those in need of a loan. most important. In comparison, those who refinance their home will have more equity “to play with in their home”.

“These are still historically good interest rates – it’s just that they’ve gone up and it’s much more of a buying market,” she said.

Jeff Tucker, senior economist at Zillow, a real estate data company, said the rise in interest rates came more suddenly than many expected. U.S. home prices also hit record highs last year, driven by a 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.”

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. Yet skyrocketing interest rates and rising home prices in the Bay Area are making the area even less affordable for many families.

In September, only one in five 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. The median sale price of single-family homes in the nine-county area exceeded $1 million. Last year.

In Marin, according to Fischer, average payments for a home priced at $1.5 million grew more slowly, between $200 and $500 per month over the same period, depending on loan size and increases. interest rates. She said even this difference in cost would have a greater impact on low-income people in Marin and see those payments increase throughout the year.

Additionally, 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 more stringent financial requirements but generally carry lower rates. lower interest. Jumbo loans typically have interest rates about half a percentage point lower than a standard mortgage.

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. The median Zillow home value index in San Francisco hit $1,542,347.

Marin home values ​​rose 15% to 17% last year, according to Christina Hale of Coldwell Banker in San Rafael. The median price for a single-detached home in Marin County was nearly $1.49 million in December, the latest month available from the county assessor’s office.

“I don’t think the housing market is going to slow down,” Hale said. “Interest rates will certainly rise, but they are still relatively low. I remember back in the 80s, when interest rates were at 18%.

She said most of her customers have to qualify for jumbo loans, and a small percentage from outside the region have tighter budgets, although there are cash buyers. She said even neighborhoods once considered more affordable, like Corte Madera, have become some of the toughest to find available homes, let alone win an offer for one.

Rita Bairley, who rents in Lagunitas, said she gave up being able to afford to buy a home in her own county. She also feels insecure about the stability of the rental as the booming real estate market pushes landlords to sell properties.

Bairley said his last residence, in Fairfax, was sold despite structural damage. She said she was given two weeks to move.

“I am now retired from teaching due to COVID and am constantly looking for affordable housing,” Bairley said. “Laws are twisted to accommodate wealthy landlords, and tenants are disposable.”

“Unless there’s a magical inheritance or a lottery,” she said, “I’ll probably be a tenant forever.”

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