Mortgage Rates and Housing Prices
Mortgage rates are on everyone’s mind, and for good reason. Every day, mortgage rate fluctuations are reported in the news, and thoroughly dissected, discussed, and debated.
Naturally, for the majority of home buyers, financing their purchase is a necessity, and mortgage rates have a huge impact on how much a buyer can afford to spend on a home. Generally speaking, the prevailing assumption is that when mortgage rates go higher, housing prices go lower. Higher interest rates reduce buyer purchasing power and, therefore, demand.
More Than Mortgage Rates Matter
Except, that’s not always the case. Homeowners currently holding a low mortgage rate may be less likely to sell and take on a new mortgage at a significantly higher rate. According to figures from Black Knight Inc., as of July 31 this year, more than two-thirds of first-lien mortgages had a rate below 4%, and about 83% of those mortgages are 30-year fixed rates. This dynamic limits the supply of homes for sale, which, in turn, keeps prices up, even as mortgage rates go up.
And while some predict where housing prices will go based on mortgage rates, the relationship is more complex. Since 1970, markets that saw a decrease in the median home sales price were more likely to have falling interest rates than rising ones. And when the Fed increased rates to combat inflation in the late 70s, home sales prices increased. Between 1977 and 1981, mortgage rates rose from 8.65% to 18.63%. During that four year period, the median sales price of a home in the US rose nearly 52%.
Mortgage rates are just one of a number of factors that have an impact on housing prices over time. Large-scale macroeconomic forces like new housing construction, unemployment rates, changing demographics, inflation, and more also impact housing prices. Additionally, real estate is extremely local, particularly in the Bay Area. The factors impacting home prices in San Francisco can be different from the factors influencing home values in other cities and regions. And oftentimes, these factors can even vary between neighborhoods in the City.
Remember, Real Estate is Local
Overall, larger macro-economic trends like mortgage rates should not be overlooked; it’s important to understand broader forces when deciding to purchase or sell property. However, it’s most important to consider the factors that shape our local market.
Working with an experienced agent like me, who is on the ground every day in the San Francisco real estate market, offers greater insight into changing home prices and buyer demand in our community. As always, the right representation can help you make informed decisions with confidence, regardless of national headlines.
