The big question on everyone’s minds remembering past interest rate increases by the Fed when they “fought” inflation, is …

Will Interest rate increases make Palos Verdes home prices fall?

I’m going to present both cases here … yes and no and you can decide. After you’ve taken a look at this blog article and formed an opinion, either use the “Calendly” blue tab at the bottom of your screen or the “Contact Us” link in the upper right of this page. Let’s meet for coffee (my treat) or via Zoom and strategize together how you will use this information to further your interests.

First, let’s go over the side which says … yes, interest rate increases will affect your home’s value and make it drift downwards.

Since the beginning of the year, the 10 Year Treasury, on which nearly all mortgage products base their interest rate, has gone up 0.877% as of 3/22/2022.  How might this affect a Buyer’s willingness or ability to pay for your home?  Let’s take a look. 

Let’s first take a look at the Single Family Residence sales on the Peninsula in the last 6 months according to the CRMLS:

For now, Buyers are paying 3.81% over the list price for the “median” values.  Will that trend continue given what interest rates are doing?

What we do know is that many Buyers are buying for all cash but that’s not a majority of Buyers.  Most Buyers are putting down around 40%.

For the median sale price of $2,382,500, that means the loan amount is $1,429,500.

Let’s look at what a 0.877% increase in interest rate does to the monthly payment.  Bankrate.com today shows that mortgage rates for a 30-year loan average about 3.439%.  Let’s drop that by 0.877%, the amount of increase in the 10 Year Treasury since the beginning of the year.  That leaves us an interest rate of 2.562% just a few months ago. 

Here’s where we have to assume something.  The National Association of Realtors says that people stay in their home an average of 13 years before selling; that’s 156 months.  At $676.08, that’s $105,468. 

So there’s the problem!  Would it be reasonable to think that a Buyer would only be willing to pay $105,468 less for your home today than a few months ago?  And it looks like the Fed isn’t done jacking up rates.  Will this scenario worsen? 

Now, let’s take a look at the other side; there is no cause and effect between interest rates and home prices

So, now you have it. What do you think? Will interest rate increases make home prices fall? Or not? Use the “Contact Us” tab in the upper right of this page or the Calendly blue tab at the bottom of your screen and let’s set a time to talk about it and what it means either for your purchase of your next home and/or sale of your current home. Thanks for dropping by!

Do you want a report on the equity in your current home? Click here for a complimentary report

One last thing, in the video above you might find asking yourself, “well that’s fine and dandy, but how exactly do you measure supply and demand for homes and how those forces change over time”. No surprise, I have an answer for that too, click here