Mortgage rates hit their highest point this year, 7.52 percent for a 30-year, fixed rate loan, this week.
San Diego home prices have continued to increase and went up the fastest in the nation in December and January, said the S&P Case-Shiller Indices.
Some experts have said the limited number of homes for sale will continue to push up prices, despite higher borrowing costs. There were 3,554 homes for sale in the last four weeks — considerably lower than the nearly 6,000 in summer 2002.
Yet mortgage rates are up from the start of the year, around 6.72 percent, and make the monthly cost to buy in San Diego considerably higher.
Q: Is a 7.52 percent interest rate enough to slow San Diego home price growth?
Economists
Lynn Reaser, economist
YES: Housing inventories have been constrained by low construction and by the preference of empty nesters to age in place rather than downsize. Homes now turn over only once every 15 years. High interest rates will constrain new building, but will have an even greater effect on demand. All-cash sales and the of family in assisting homebuyers will not be enough to finally offset the effect of high mortgage rates.
Alan Gin, University of San Diego
NO: The gap between the old interest rates and the new ones is so large that many homeowners can’t afford to sell their homes and take on much higher mortgage rates. On top of that, institutional investors like BlackRock are entering the market with large amounts of capital and making all-cash offers, which insulates them from higher interest rates. The lower supply due to homeowners not selling and the increased demand due to institutions will continue to push housing prices higher in San Diego.
James Hamilton, UC San Diego
YES: One of the reasons high interest rates have not stopped the price rises up to this point is because many people were assuming that rates would come down quickly, and they could soon refinance at a lower rate. But it’s now clear that rates are going to take much longer to come down than many people had been assuming. If you’re going to be stuck paying that high interest for many years, you have to rethink purchasing an expensive home.
Norm Miller, University of San Diego
YES: At least through May, perhaps June, Case-Shiller figures will continue to show significant positive home price increases, but then we should see a flattening of the price increases. Unless mortgage rates drop to 5.5 percent or less, we will have an inventory shortage from rate locked-in owners, and that will hold prices up. With inflation lower by year’s end, mortgage rate declines should follow, but it might be 2025 before we see rates under 6 percent.
David Ely, San Diego State University
NO: Many homeowners are making the decision to stay in their current home because moving would mean giving up a low-rate mortgage and taking on one with a much higher interest rate. A meaningful drop in mortgage rates in the near future seems unlikely. With the modest inventory of homes for sale, upward pressure on housing prices will persist and likely outweigh the impact that high mortgage rates have on the demand for homes.
Ray Major, SANDAG
NO: Not enough homes have been built to keep up with our population growth for nearly 20 years. The pent-up demand for housing exceeds 100,000 units, which is equivalent to all the housing units in El Cajon, San Marcos, Santee and Poway combined. At the rate we are building, it will take more than 10 years to fill that gap. The problem is a lack of supply; demand plays very little in the equation right now.
Caroline Freund, UC San Diego School of Global Policy and Strategy
YES: But the effect is small. While high interest rates are reducing demand, they are also restraining supply. Folks who have locked in low interest rates are staying put, lowering inventory. It is also less profitable to build new housing in the current high interest rate environment. Moreover, the share of cash buyers in San Diego is sizable, which limits the depressing effect of elevated interest rates on demand.
Kelly Cunningham, San Diego Institute for Economic Research
YES: Higher prices and interest rates decrease affordability for would-be buyers of every housing type. Higher interest rates limit buyers willing and able to purchase homes, which means the market is narrowed to institutional buyers and those not needing to borrow to make the purchase. Higher building and labor costs do not allow for more construction to increase affordable supply. Unless leaving the area, it’s not worth it for homeowners to downsize into more expensive smaller homes.
Executives
Austin Neudecker, Weave Growth
NO: Increased interest rates are insufficient to abate the housing affordability crisis since the underlying problem is the historic shortage of available homes. Relatively high interest rates exacerbate the problem by preventing existing homeowners from trading up or downsizing and taking on new mortgages, further restricting supply. The scarcity of homes for sale will continue to exert upward pressure on prices.
Chris Van Gorder, Scripps Health
NO: The higher cost will weaken the ability of some to buy. But a 7.52 percent interest rate won’t stop buyers because there is greater demand than there is supply — home prices continued to climb but sales still went up from January to February, with more houses coming on the market and buyers seemingly becoming more resigned to higher rates. I still buying my first condo in the late ‘70s at a rate of 8 percent.
Jamie Moraga, Franklin Revere
NO: Higher rates will keep some out of the housing market, but others will see it as an opportunity. Comes down to supply and demand. If there’s low supply, it produces stiffer competition, which leads to increased demand and higher prices regardless of the interest rate. San Diego’s still highly desirable, so demand will remain strong regardless of price or interest rate. San Diego’s housing market hasn’t hit the tipping point yet.
Phil Blair, Manpower
YES: It certainly should be. We are entering a stalemate where so few San Diegans can afford the price of a house, let alone such high interest rates. Also there is very little housing on the market due to owners not being able to give up their 3 percent loan and move to a new property with a much higher interest rate. If I can’t buy and you can’t sell we have a problem.
Gary London, London Moeder Advisors
NO: Home prices continue to rise principally because of a supply deficiency. High interest rates do matter because the combination of price increases and high interest rates certainly impact affordability. But rates will eventually go down. Inventory is, and will remain, the central problem. Note to self: continue to lobby for new home construction, particularly on smaller lots that are more price accessible to the “missing middle.”
Bob Rauch, R.A. Rauch & Associates
NO: Higher mortgage rates can slow home price growth, but this is not always true. When mortgage rates rise sharply, this could reduce demand and slow home price growth, but this is not a sharp rise. Strong economic growth, higher inflation and lower unemployment could also offset this. Add in factors like housing supply and consumer confidence, and how everything interacts in our current economic climate becomes more important than the interest rates alone.
Not participating this week:
Haney Hong, San Diego County Taxpayers Association
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