Interest Rates Are Up, Buying Power is Down in San Diego

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In general, interest rates on home loans have been increasing at a fast and steady clip over the last month. Over the last month, the 30 year fixed rate mortgage has gone up as much as a half percent. It has been a few years since we have seen such a steep increase in interest rates in a one month period.



When interest rates rise, it lessens the buying power of potential buyers.



For example, if a buyer was in the San Diego real estate market a month ago for a home that cost $500,000 and the rate was 6% on 30yr fixed mortgage, his or her estimated monthly payments would have been around $3000.00 a month. If rates were to increase 1 percentage point to 7%, his or her monthly payments would increase to about $3325.00.



As a general rule of thumb, at a 6% fixed rate, with 30 years of payments, one would have to pay about $600.00/month for every $100,000 borrowed. At a 7% rate, one would have to pay about $665.00/month on every $100,000 borrowed.



As rates go up, so do monthly payments. The above rates I used are not actual rates here in San Diego—they’re just used as an example to show the effect of rate changes on monthly payments. Rates do vary depending on your credit score, how much you are borrowing, and market conditions. Please consult a mortgage professional to get a better idea of what your monthly payments would be and to see what you can afford.



An increase in rates can have several negative affects on the market. With less buying power, buyers may find that they can no longer afford now what they could have afforded a couple of months ago. This can decrease the number of financially qualified buyers. Less buyers in the market equals less demand for homes. This coupled with the seasonal upswing in the supply of San Diego homes for sale is causing a downward pressure on prices in some of our local San Diego communities.



Keep in mind interest rates are still historically low.



Within the last few days, interest rates have actually crept downward from the peak of last week. However, there is still the risk of rates increasing, so it may present a good opportunity to get a loan while there is downward movement.



Let’s say you want to wait to buy your home until prices drop 10% percent. The risk in waiting could be higher interest rates and higher mortgage payments as seen in the example above. So if the price of a home happens to drop ten percent from $500,000 to $450,000, but interest rates rise 1% point from 6% to 7%, your payments are still about $3000 a month. No change.



Historically, the San Diego median price has not dropped 10% over a one year time frame. It is a Buyer’s Market, and you may be able to find a good deal out there in some of our local areas. If you get that price decrease that you are looking for, it could be a wash if mortgage rates increase.





Contact Agent Brian Wennersten from RealEstate.com for more information.