The U.S. housing market is strong right now, but a surge in mortgage rates and home prices, According to Redfin, could sideline some buyers and cause a cooldown in the market.
“Normally, when we see interest rates rise as dramatically as they've done, you know, going from roughly 3% at the beginning of the year to now, which is extraordinary in historical perspective. So normally we would see house prices come down because, you know, higher interest rates mean that, you know, becomes more expensive to service a mortgage would normally dampen demand,” UCSD Professor Allan Timmermann said.
The interest rate on a 30-year fixed-rate mortgage has now topped 5%.
The rise in the mortgage interest rate comes after the U.S. Federal Reserve announced an interest rate hike and signaled more interest rate hikes in the future.
“A typical household now costs about $500 more to service each month, and so that combined with the fact that gasoline prices and, you know, people's grocery shopping trips, that everything is becoming more expensive, inflation is affecting everybody,” Timmermann said.
According to the San Diego Association of Realtors the median price of a house in San Diego is now $975,000.
“I mean, almost $1 million for the average house in san Diego. That makes it extraordinarily hard. You can see those households are going to be hit on all sides -- higher costs of entering into the market, higher cost of living because of inflation. So, it's a really unfortunate, very stressful situation also with the future interest rate increases of the Federal Reserve,” Timmermann said.
Some housing market experts tell NBC 7 that there are San Diegans looking for houses outside of the county because of local prices and interest rates.
“With the increase in prices in San Diego and the proximity to the border, I have seen a slight increase in people who are more interested in going into TJ, not even just TJ but neighboring states. I've had a few homes that went up for sale because my sellers or my clients have decided to go to Arizona or Texas,” Realtor Allan Uy said.
As for when this cooldown happens, prospective home buyers may have to just wait and see.
“I honestly think that and the way the market is going right now. I still think that things will keep chugging along the way it is. I don't see a cool down in the market until maybe the end of the year. The reason for that is that we have a huge demand. There just are too many buyers out there and compared to the number of homes that we have for sale,” Uy said.