How do higher interest rates affect the Bay Area housing market?

A: Even though homes in the Bay Area housing market continue to sell for record prices, the market seems to be somewhat adjusting.

Mortgage rates are rising at their fastest pace in decades. There are still many all-cash transactions taking place. However, when we had the sudden interest rate jumps a few months ago, it felt like many of the buyers obtaining financing hesitated on buying. The entry-level portion of the market seems to have taken the brunt of this interest rate increase. The difference of a 30-year fixed rate loan of $1 million at 3.5% and 6% is approximately $1,500 a month.

This difference can be remedied in many creative ways and being pre-approved is essential to move quickly on a property.

The fall market seems to be active again, while price reductions are occurring on properties and the numbers of multiple offers have decreased. It appears that while the “frenzy” of the market is not as intense as it was in the spring, inventory is still low. Many homes are still receiving multiple offers and selling for considerably more than their asking price — but not as dramatically different as before rates went up.

A: The rising interest rates resulted in some buyers stepping back from the home purchase process, which in turn has delivered less offers and prices evening out.

In the current market there are more opportunities for first-time homebuyers to purchase their first homes. They don't have to compete with as many offers, like what we saw last year with 20 to 30 offers for one listing.

Listing prices are more balanced, and people now realize that interest rates are inline with where they were several years ago. I recently had clients purchase a home for a good deal and at a good interest rate, which was 4.25%.

Some buyers can even access a down payment assistance program or other assistance programs in the lending industry.

However, in this ever-changing market, it remains essential that sellers and buyers work closely with a professional Realtor and when they are ready to enter the market.

A: The Fed just increased rates by 0.75 points this week, further reducing the buying power of many. This, combined with the volatility of the stock market and inflation, has made all of us feel a little less flush. Buyers are not feeling the weight of “fear of missing out” any more, and are really taking inventory of their futures and moving into a phase of “let's wait and maybe something better will appear.”

This is normalizing a oncestrong seller's market. Homes that once sold within 72 hours — and above the asking price — are now on the market on average for just over a month and selling right around asking if priced correctly. Listing agents have to work harder at marketing the home to prospective buyers and their agents. Buyer agents now have the time to properly review homes and educate their clients, ensuring they get the right home rather than any home.