Mortgage Interest Rates Are Up

Mortgage Rates are Up | What is the Effect on Housing Prices?

Since the US Presidential election we have seen a steep increase in mortgage rates of anywhere from 50 to 75 basis points on many loan products depending on program, lender, credit score and all the other factors.

This has been a function of the perfect storm of a concurrently rapidly increasing stock market and a FED rate hike.

The questions I have been getting from Buyers and Sellers alike run along the lines of:
  • Will rates go down again?
  • Will housing prices be affected?
Fair enough, let's try to answer both questions.


Most economists seem to concur that rates in the 3% range are now gone forever.  My non economist view is that we may see a slight temporary dip from where we are now depending on stock market fluctuations and global events and rates will move with a range of maybe an 1/8th or so up or down from current levels. But ultimately that will be replaced by 5% mortgages which will become the "new normal". FYI, during the prior run up in 2005-2007, rates were in the 5.5-6.5% range.


There is no doubt that increasing rates will have an effect on the market, but possibly not the one you expect. Here's some thoughts.


As many current home owners bought or refinanced at record low rates, there will be less incentive to move and those people will most likely be remodeling rather than selling.

We have already seen the effect of this the last few years as inventory as declined. While Redondo Beach sees a fair amount of new construction, these are mostly replacement units and the "net new" is not enough to meet buyer demand particularly at the lower end of the market.

With lower inventory and sustained demand there will still continue to be upward pressure on the lower end of the market. So some, but not all prices will still go up until they hit a point of resistance. 


The economists who specialize in housing have said all along that when the public perception takes that interest rates are on the rise, buyers who have been on the fence will jump in before rates go even higher. Curiously Q1 is when we usually see the lowest inventory as many Sellers hold off listing their homes until the traditional Spring selling season.

Chances are that homes on the marker Jan-Feb 2017 will see a lot of activity.


Good news for Buyers is that there may be far fewer multiple offers in certain price brackets. The benefit is that there will be less waiving of various contingencies and more balance in negotiations. 

On the Seller side of things, while you may not see as many multiple offers, buyers may be more committed to properties they do get in escrow and not as likely to walk away.


Whether you are thinking of Buying or Selling, all things being equal, there is little reason to wait.

For Buyers you may be looking at higher and higher interest rates over time.

For Sellers, many other homeowners who have been on the fence may jump in now and sell.


Thinking of listing your home for sale in 2017? Start with an automated price estimate and then call Ellis Posner at 310 975 5139 for a personalized no cost valuation.