Here are the 3 most likely effects of higher mortgage interest rates on the real estate market…
Lower purchasing power for home buyers
Higher rates will increase monthly payments and reduce the amount a home buyer can borrow. At 3.5% the monthly P&I payment on a 30yr fixed $500k loan is $2,245. At 4.5% the payment goes up to $2,533. Bottom line, buyers will not be able to afford as much house going forward.
Slow down in home price growth rate
Home prices will likely continue to go up, just not as much as they did last year. The average sales price in San Diego rose roughly 20% over the course of 2021. A higher cost of capital should take some steam off the growth rate.
It is estimated that 70% of existing homeowners now have a mortgage interest rate under 4%. The historically low rates over the last two years has created a surge in homeowners refinancing into lower rates, taking cash out, and extending their payback periods. If rates go on a steady march upward then the end of the refi boom will eventually arrive.