Rising mortgage rates could create a ‘sticky shock’ for Gulf homebuyers

Mortgage interest rates topped 6% this month for the first time since the Great Recession, and have continued to rise, slashing home-buying demand in the expensive Gulf region’s housing market.

The average 30-year mortgage rate reached 6.29% Thursday, a number that has doubled since January as the Federal Reserve raised interest rates to try to tame inflation.

The sudden rise in mortgage rates that began in April ended a period of historically low rates that had helped drive competition and home prices in the region to astronomical levels. Increased mortgage rates have slashed a large portion of buyers’ purchasing power in an area where home prices are still growing, although much slower.

For example, a buyer who offers 20% to buy a home for $1.7 million — the average sale price in San Francisco in August — will pay about $10,500 in monthly payments under a 30-year fixed mortgage at 6.29%, according to Machine Redfin Calculator.

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

Mortgage broker Jim Wilson, president of Preferred Mortgage, Inc.

Mortgage applications over the past three months have fallen 90%, Wilson said, and he predicted a drop in home prices in the next six months. And while it has become common to see sellers in the Gulf region lower their asking prices, these cuts are often not enough to offset the impact of higher mortgage rates.

“Sellers have to be willing to lower their prices until they find someone who will be able to afford them,” Wilson said.

Average mortgage rates have risen by one percentage point since mid-August. Prices fell between late June and early August, resulting in a modest month-to-month rise in home sales and prices, according to the California Association of Realtors.

Home sales in the Bay Area are down 29% from a year ago, a trend that is likely to continue through the rest of the year as prices continue to rise, according to the state’s Association of Realtors.


#Rising #mortgage #rates #create #sticky #shock #Gulf #homebuyers

Leave a Comment

Your email address will not be published.