The Impact of Rising Mortgage Interest Rates on the Housing Market

Despite strong economic growth and historically low unemployment rates, the housing market in Southern California and across the United States has been slowing down recently due to rising mortgage interest rates. As rates have increased, potential buyers have been shying away from purchasing homes, causing sales to plunge and prices to drop.

In this blog post, we'll look at how rising mortgage interest rates affect the housing market in Southern California and across the United States. We'll also offer some advice for homeowners considering selling their homes in this current market.

The housing market is slowly cooling down after a record-breaking year. This does not mean, however, that the market is heading for a crash. As we mentioned in a prior blog, one of the key reasons why the market won’t crash this time is the current undersupply of inventory. Housing supply comes from three key places:

  • Current homeowners are putting their homes up for sale
  • Newly built homes are coming onto the market
  • Distressed properties (short sales or foreclosures)

For the market to crash, you’d have to make a case for an oversupply of inventory headed to the market, and the numbers just don’t support that. That said, while we aren’t heading for a crash, the market is showing signs of declining home prices.

The last 3 months have seen home prices decline by 10.6% across Southern California, which means that prices will likely go down even further in the upcoming quarters. We are hearing one question from our clients: “where will home prices bottom out at?”

Before we speculate on that topic, let’s address what is causing the pricing decline. The main factor behind this recent drop in home value is the increase in mortgage rates linked to Fed decisions, which will likely continue for some time as they try to get their job done. Experts say that even at low levels with a 5% fed funds rate (which would bring 30-year mortgages closer to 8% to 8.5%), prospective buyers should expect significant price swings within just 1 or 2 years, if not sooner.

The biggest question is, what impact will mortgage rates around 8% to 8.5% have on home values in Southern California?  The short answer is that home prices would need to fall another 25-30% to maintain the same monthly payment as today’s mortgage rates.  Based on that scenario, we expect the median home value to drop to around $550K in Southern California over the next 1-2 years, compared to the $800K we have today.

The time to sell is now. If you’re considering selling your home, contact Frontgate Real Estate today!

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Frontgate is the future of real estate, having created a streamlined, tech-savvy, and personalized experience for buyers and sellers. Dana, Jeff, and the Frontgate team consistently advise a wide range of influential buyers and sellers in a manner and style that has earned them recognition on a national level.

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We offer the highest level of expertise and service with integrity. Jeff Biebuyck & Dana Olmes are Luxury Homes Specialists in Calabasas with a particular expertise in representing residential estate properties throughout the West San Fernando Valley, Conejo Valley, Malibu and Greater Los Angeles area. As consummate professionals, Jeff Biebuyck & Dana Olmes provide their clients with the highest level of service to reach their unique real estate goals.

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