Bay Area homebuyers left behind by rising mortgage interest rates

Mortgage interest rates surpassed 6% this month for the first time since the Great Recession, and continue to climb upward, cooling homebuying demand in the pricey Bay Area housing market.

The average interest rate for a 30-year fixed-rate mortgage reached 6.29% on Thursday, a figure that has doubled since January as the Federal Reserve hikes interest rates to try taming inflation.

The spike in mortgage rates that began in April ended a period of historically low rates that helped fuel competition and home prices in the region to astronomical levels. Mortgage rate hikes have chipped away a significant chunk in buyers’ spending power in a region where home prices are still growing, although much more slowly.

For example, a buyer who puts down 20% to purchase a home for $1.7 million — San Francisco’s median sale price in August — would be paying about $10,500 in monthly payments under 30-year fixed-rate mortgage set at 6.29%, according to a Red fin calculator.

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

“Buyers are just kind of sitting on the sidelines waiting to see what’s going on,” said mortgage broker Jim Wilson, president of the Walnut Creek-based Preferred Mortgage, Inc.

Mortgage applications over the past three months have dropped 90%, said Wilson, who predicted a drop in home prices in the next six months. And while it’s become more common to see sellers in the Bay Area drop asking their prices, those reductions often aren’t enough to balance the impact of surging mortgage rates.

“Sellers are going to have to be willing to drop their prices until they find someone who’s going to be able to afford it,” Wilson said.

Average mortgage rates went up by one percentage point since mid-August. Rates climbed down between late June and the beginning of August, resulting in a modest month-to-month bump in home sales and prices, according to the California Association of Realtors.

Home sales in the Bay Area have dropped 29% from last year, a trend that’s likely to continue through the rest of the year as rates keep climbing, according to the state Realtors’ association.

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