The continued rise in mortgage rates is likely to make homeownership unaffordable for large swathes of households in California and stifle the supply of homes for sale, housing economists say—a development that could make prices shoot up as competition for homes escalates.
On Thursday, Freddie Mac revealed that borrowing costs for home loans soared above 7 percent for the first time this year. As of April 18, the 30-year fixed rate mortgage averaged 7.1 percent compared to 6.88 percent the previous week.
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“As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
In California, one of the most expensive housing markets in the country, elevated mortgage rates are going to make it even harder for prospective homebuyers to afford a home, economists say.
“Interest rates rising will continue to create housing affordability challenges and tighten up supply for the housing market in California,” said Oscar Wei, deputy chief economist at the California Association of Realtors.
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The median price of a home in the Golden State hit its highest level in seven months in March, going up by close to 8 percent to $855,000 from a year ago. High prices have helped stifle supply as sellers sitting on low mortgages are reluctant to sell and enter a market that will ask for 7-plus mortgage rates.
High prices have made affording a home beyond the grasp of a huge chunk of Californian households. About 85 percent of residents in the state will struggle to be able to pay for a median-priced home.
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Some parts of the state may feel the effect of high mortgage rates differently, said Realtor.com’s chief economist Danielle Hale.
San Francisco and San Jose residents tend to afford higher down payments, which helps to mitigate against the prospect of elevated borrowing costs when acquiring a home loan. Those living in Southern California tend to make smaller deposits on mortgages, which means that when rates go high it makes their monthly payments more expensive.
“So it’s really going to depend on where you are in California, but the one unifying thing across the state is that home prices are high and so on a dollar basis, they experience much higher costs from rising mortgage rates than in other parts of the country,” Hale told Newsweek.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.