Mortgage rates are rising. Will that slow the out-of-control housing market?
Source: Excerpt from La Times April 20, 2022 For a decade, rock bottom mortgage rates helped home buyers steadily bid up the cost of housing. That includes the last few years, during the pandemic, when rates fell to unheard-of levels and home prices exploded across Southern California and the nation. Now, things are changing. Mortgage interest rates are rising fast, hitting 5% last week for the first time since 2011, according to a widely watched gauge from Freddie Mac. Just six weeks ago, average rates for a 30-year fixed mortgage were under 4%. In November, they were below 3%. The swift rise, on top of soaring prices, has made homeownership suddenly more expensive. So, if people can afford less, are home prices about to fall? Several top real estate experts said they don’t foresee price declines — at least meaningful ones — absent a recession. Prices are most likely going to continue to climb, but in smaller increments than Southern California’s current 17% annual rate. Economists and other experts pointed to several factors that should largely uphold home values: a severe shortage of homes for sale, rising incomes and falling unemployment. In the past, sharp rises in mortgage rates have slowed home price growth, and experts said higher rates should have the same effect this time around as well. The simple reason is people can afford less, and this is starting to show. Industry professionals report fewer people at open houses, fewer multiple offers per home and fewer mortgage applications.
It’s become harder for sellers to make special demands, including that prospective buyers waive loan and appraisal contingencies that let buyers back out if a problem arises. Cooling demand hasn’t yet translated into a slowdown in what homes are selling for, according to the latest available data. The median home price across the six-county Southern California region rose 16.7% in March from a year earlier, to $735,000, according to data published Wednesday by the research firm DQNews. That’s slightly faster than the 15.4% year-over-year gain posted in February. In Orange County, the March median price soared 22% and topped $1 million, the first time the median price in any Southern California county has crossed the million-dollar mark.
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