While its common sense that the interest rates will have an impact on real estate . But considering we have lot of all cash or high cash deals in bay area , will the impact be less significant for say 1% increase in interest rates.
Also does it make sense to wait for interest rates to rise if you are a buyer ? Its expected that interest rates will rise sooner now with Trump presidency .
It really depends what your objective is as a buyer. I mean, if you are buying to provide a roof for your family and prefer to not pay anymore of those ugly high rent payments and for the foreseeable future your income stream(s) look steady and stable one should probably buy now before rates head up a lot (if you believe that to be the case). Spring is also around the corner too and right now the action may be flat that you might be able to find some diamonds in the rough properties.
Historically, even if rates go up a tad keep in mind that some of us have seen “normal” rates in excess of 6-8% before. Some of the more senior members may recall the double digit interest rates from the 70’s(?). Of course though, prices have gone up a lot since then so one has to look at what makes sense for him/herself financially. From my experience and knowledge of actual deals going down, I wouldn’t say that cash only offers were necessarily the winner in every case. My friend who sold his Millbrae beauty on top of the hill took the best price and told the few cash buyers to try again. It’s the contingencies that matter a lot too. Quite honestly, I would accept top dollar in pennies, as long as those pennies ended up in my designated account at the end of the day…
Interesting question-- I always thought higher rates would lower prices. Are people in the Bay Area stretching their pre approval to buy biggest house possible? If so then higher rates will drive prices down. If people are buying well within affordability, it wont. Over 1 million, mortgage rates already “increase” due to loss of deductibility. So rates probably won’t affect high end as much?
Depends on the condition at the point of rising interest rate. Normally, booming economy leads to rising housing prices and demand of money, then rising interest rate. In Bay Area, interest rate was artificially held down because of national situation (struggling economy and Fed action). That is to say, house prices have shot up higher than has interest rate is allowed to increase. Hence, should interest rate start to increase, house prices in Bay Area should at least plateau since most buyers are strong holders. Hard for to drop too much since inventory is still very low. House prices would tumble only if Trump carries his threat of starting a trade war.
Short term, if all those fence sitters who sat out waiting for the prices to drop really get the sense that, yes, rates are now firmly going to go up from now on, I would expect each and every one of them to go shopping for a home pronto. Aaah, glad I got my 2.5% fixed rate all locked up years ago…
That’s damn good – I was hoping for a clear refinance opportunity but it looks like it’s not coming. I don’t have a bad rate, just not one as criminally low as you 
Yeah, hard to time the bottom of any market…it helped to have a mortgage broker who became more of a friend who was willing to do it for me. I could easily have been not told and locked in at a slightly higher rate and I still would have been satisfied, just not crazy satisfied. So, I try to scratch her back as often as I can when I can (of course, only when folks ask for her contact info, no cold selling from me…
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I am relatively new to the RE market, but my perception is that the circumstances now differ a bit from ~ 2 years ago when the fear of rising interest rates drove & rushed many fence sitters to buy properties. Back then, the SF Bay Area economy was booming with no end in sight. Now, most people can sense that the party is about to end soon… and may adopt a more cautious wait-and-see approach this time.
Well, I personally know a few people who are looking currently and they would be impacted by rates since they are your conventional buyers and they are looking in the lower end of the market (say 1.3M and under). They all need places for housing family members so if there are any indications that rates are going to steadily start going up, they will have to either go up in pricing or go outside SF proper which is not their preference. You would be surprised how many people have money to buy houses still. That last couple in their 20s who made over 350k in salary applying to rent my apartment recently was truly an eye opener about the money tech people make around here. They drove an older Toyota, you wouldn’t pick them out of a line-up.
I’ll give anyone $1 if they know the last time home prices dropped in a year with a rate increase. I looked at the data back to the 1920’s, and it’s never happened.
Good point, usually rate hike is in response to inflation, so home prices are going up. In this case will rate hike be from inflation or botched job?
Question: do real (inflation adjusted) home values go down after rate hike?
As expected, the fence sitters make their move…
Rising interest rates impact BA businesses. If rates go up substantially, both large and small businesses cut back on borrowing. Money will move away from VCs and to other investments. This could impact hiring and salaries and slow BA real estate.
Personally, I would rather buy at a high rate and lower purchase price. When the US enters the next recession, rates will be cut and the mortgage can be refinanced. But, you’re stuck with purchase price and the resulting property tax rate.
Also, depends if an early mortgage pay off will be possible. If you can pay off the mortgage early, then high rate and low price is definitely preferable.
Me2.
Agree with your posting, but did want to point out that technically you can get your property reassessed in a downturned market and thus lower your property tax bill. I did it years ago when the Oakland market was in the dumps. Ask the Millennium Towers SF people about it…
But don’t they raise that property bill back up once the market recovers and your property is back up to purchasing price? If so, this is only a temporary benefit.
If I remember correctly, once they lower it that is the “new” starting point and then your increases are capped in line with Prop 13. It is not like you will immediately go back to the old number if say the market exploded.
Good information! Where did you find this resource?
