Why Bay Area housing prices are unlikely to drop despite climbing mortgage interest rates

But, experts say, low inventory and willingness from high-earning home buyers to engage in bidding wars are expected to keep the Bay Area’s home prices from declining.

“As long as we have this super unbalanced inventory situation, (mortgage rates) are unlikely to have a lot of bearing on it,” said East Bay Realtor Andrea Gordon of Compass.

Daryl Fairweather, chief economist for the real estate listings site Redfin, said there are some early signs that demand is slowing. Purchase applications for mortgages are trending downward, she said. Searches for homes for sale in pricey coastal markets, such as the Bay Area and Los Angeles, are also down.

Still, none of that has translated yet to lower home sale prices. The median sale price for a home in San Francisco was $1.5 million in March, a 9% increase from the prior year, according to Redfin.

“You do have to kind of squint to see it,” Fairweather said.

Patrick McCarran, president of the Delta Association of Realtors, has seen some indication of a “slight” cooling in the far East Bay’s housing market. Home listings that would have attracted more than 10 offers before mortgage rates began to climb earlier this year now net about five offers or fewer, he said. Homes are generally staying on the market longer, as well.

Demand in the delta region, one of the Bay Area’s most affordable housing markets, remains fueled by first-time home buyers and teleworkers from San Francisco and San Jose in search of spacious, single-family homes, McCarran said. And even though listings in the area are generally seeing fewer offers these days, enough buyers are putting competitive offers on homes to keep prices from dropping, he said.

“We’re still seeing competitive offers that are often driving prices up,” McCarran said.

The recent hesitation from buyers appears to stem more from fatigue than it does rising mortgage rates, according to mortgage broker Liz Bayer of ProMortgage.

In one of the nation’s most competitive housing markets, buyers offering non-contingent all-cash offers over asking price sit at the top of the Bay Area’s home-buyer hierarchy. That makes it difficult for other home buyers moving through the mortgage approval process to compete with the speed of an all-cash offer, Bayer said. She said she’s noticed an uptick in “hard money” loans that are pricier but come with a faster approval process than a conventional mortgage.

“Home buyers are pulling out of the market temporarily because they’re just frustrated that they can’t get their offers accepted even though they’re offering at the list price or over,” Bayer said. “But then an investor who’s looking to pay all cash gets into the mix, and they are offering a 7-day close that the buyer is not in a position to compete for.”

The recent rise in mortgage rates increases monthly payment costs, and could lead some home buyers who’ve been priced out of the Bay Area market to seek out more affordable places, such as Sacramento or the Central Valley, Fairweather said.

A buyer who puts down 20% to purchase a $775,000 home — the state’s approximate median price — would have been paying $3,600 in monthly mortgage payments at the average mortgage rate of 3.11% at the start of the year, according to a Redfin calculator.

Under the latest average of 5.11%, that same buyer would be looking at monthly payments of $4,320.

The higher rates are unlikely to significantly impact the buying power of high-earning home buyers whose wages have kept up with rising inflation, Chris Mason, an East Bay independent mortgage broker, said. Mason hasn’t seen any noticeable drops in home buyers requesting preapprovals for mortgages.

“On the demand side, it is the case that the middle class is getting squeezed the most by the combination of inflation and higher interest rates,” Mason said. “But, for the most part, in the major Bay Area markets, your median income family was never in a position to buy a house, anyways. That ship sailed five years ago.”

Ricardo Cano is a San Francisco Chronicle staff writer. Email: ricardo.cano@sfchronicle.com Twitter: @ByRicardoCano

Article source: https://www.sfchronicle.com/bayarea/article/mortgage-rates-home-prices-17120800.php

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