Here’s how expensive a mortgage is on a typical Bay Area home after interest rate hike

The spike in mortgage rates that began in April ended a period of historically low rates that helped fuel competition and home prices in the region to astronomical levels. Mortgage rate hikes have chipped away a significant chunk in buyers’ spending power in a region where home prices are still growing, although much more slowly.

For example, a buyer who puts down 20% to purchase a home for $1.7 million — San Francisco’s median sale price in August — would be paying about $10,500 in monthly payments under 30-year fixed-rate mortgage set at 6.29%, according to a Redfin calculator.

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

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

Mortgage applications over the past three months have dropped 90%, said Wilson, who predicted a drop in home prices in the next six months. And while it’s become more common to see sellers in the Bay Area drop their asking prices, those reductions often aren’t enough to balance the impact of surging mortgage rates.

“Sellers are going to have to be willing to drop their prices until they find someone who’s going to be able to afford it,” Wilson said.

Average mortgage rates went up by one percentage point since mid-August. Rates climbed down between late June and the beginning of August, resulting in a modest month-to-month bump in home sales and prices, according to the California Association of Realtors.

Home sales in the Bay Area have dropped 29% from last year, a trend that’s likely to continue through the rest of the year as rates keep climbing, according to the state Realtors’ association.

The contrast in demand is striking compared to last year’s frenzied market, a period defined by bidding wars and a 20% year-over-year growth in home prices. Now, homes listings are generally yielding fewer bids and staying on the market longer.

In Contra Costa County, for example, the median number of days home listings stay on the market more than doubled to 18 days compared to eight days in August 2021.

The rise in interest rates is hitting the region’s high-earning buyers, as well. According to a Redfin report, no place in the country saw a bigger drop in luxury home sales than the Bay Area.

Year-over-year luxury home sales, which Redfin defined as homes “estimated to be in the top 5% based on market value,” dropped significantly in Oakland (-64%), San Jose (-60%) and San Francisco (-50%).

“High-end-house hunters are getting sticker shock when they see the impact of rising mortgage rates on paper,” Redfin economist Daryl Fairweather said in the report. “For a luxury buyer, a higher interest rate can equate to a monthly housing bill that’s thousands of dollars more expensive. … Luxury goods are often the first thing to get cut when uncertain times force people to reexamine their finances.”

Ricardo Cano is a San Francisco Chronicle staff writer. Email: Twitter: @ByRicardoCano

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