Impact of Rising Interest Rates in San Diego


by Selena Cowell

How does the rise in interest rates impact home affordability in San Diego?

Rising Interest Rates in San Diego
Surge in Interest Rates

Interest rates in San Diego are still historically low, but both the Federal Reserve and Ben Bernanke have pretty much signaled the end to the Bar of Insanely Low Mortgage Rates. The Fed is about to reduce its program of bond-purchasing by the end of 2013, thereby suggesting the beginning of the end of the repressed interest rate. The interest rates of a 30 year fixed rate mortgage loan will hit the 4.25% benchmark rate before the end of July, and this rate will see a sharp rise from 3.5% in the month of May, 2013.

Keith Gumbinger, vice president at a mortgage information website, suggests that the quick rise in the mortgage rates might put a fork in the first time mortgage and the refinancing market. As the refinance applications account for two-thirds of the new loan activity, there’s going to be a steep change in the market.

The housing market in San Diego is going to see a lot of changes due to the sudden rise in the mortgage interest rates. Freddie Mac said that they’re about to release results of the latest Primary Mortgage Market Survey. According to recent reports, the interest rates on the 30 year term mortgage increased by 1.25 points and this is a sweeping rise that might affect the way in which the homebuyers behave and those who are about to refinance their mortgage loans. And that is already dated news.

Hike in interest rates – Does this affect the home affordability of the San Diego home buyers?

Yes, it is pretty obvious that the applications for refinancing, which accounted for 8 out of 10 new loan applications, were down by 10% from week to week soon after the mortgage rates started rising higher, according to reports by the Mortgage Bankers Association. Another separate survey by the same organization showed that the demand for mortgage loans for purchase of a new home was up by seasonally adjusted 0.9% and 3% from the same time in the previous year.

When the mortgage rates were down at their record low levels, home sales were also at peak levels in San Diego and everyone declared that there had never been a better time to finance a home. Now that the mortgage rates are rising in the County of San Diego, experts are wondering about the impact it might have on the housing market.

Possibility of shadow inventory in San Diego real estate market

Apart from the rising mortgage rates, another thing that is being noticed in the San Diego real estate market is the scarcity of homes for sale which has led us to a very strong seller’s market. Experts are of the opinion that there’s a shadowy inventory of homes that could soon flood the market. Is it so? Yes, in San Diego County, the shadowy inventory that is being seen includes at least 13,000 mortgages that are presently delinquent, as per reports by the Fitch Ratings. Nationwide reports show a shadow inventory lurking around which may probably lead to 2 million foreclosures, mortgage delinquencies–and a number of short sale too.

Therefore, when it comes to the effect of higher interest rates on the wallets of the homebuyers, it is certainly going to impact them. The homebuyers who are about to take out home mortgage loans should calculate their affordability through the home affordability calculator and then take some desired decisions about getting a mortgage loan. Before the mortgage rates rise out of control, you should take immediate steps to grab a deal in San Diego and realize your dream of buying a home.

Historically, interest rates in San Diego below 6 percent have been considered huge bargains. And they may be viewed that way again in the not too distant future!