Interest Rates Effect on 2023 San Diego Housing Market

Coins on a table, with wooden home sitting behind it

Interest Rates Doubled In 2022

The housing market has been on a rollercoaster ride over the last 9 months, with interest rates soaring to unprecedented heights in 2022. However, recent data suggests that we may be seeing a reprieve in the form of lower mortgage rates. According to the Mortgage Bankers Association, the average contract rate on a 30-year fixed-rate mortgage fell by 19 basis points to 6.23% for the week ending January 13th, which is the lowest it has been since September of 2022.

This significant drop in interest rates is a welcome relief for potential homebuyers, as rates had skyrocketed to over 7% last October. This sudden increase was a result of the U.S. central bank raising its benchmark policy rate at the fastest pace in 40 years. This caused mortgage rates to double during 2022, something that had not occurred before.

Buyers Market

For the last couple months, the housing market reverted into a buyers market. This created a favorable environment for buyers, as sellers became more likely to grant credits for closing costs and offer interest rate buy downs to attract buyers. This shift created a great opportunity for buyers to save money on the purchase of their new home.

One of the most significant advantages of a buyers market is the ability to negotiate better terms on the purchase of a home. With less competition, buyers have more leverage to negotiate with sellers. This can include requesting credits for closing costs, which can help to offset the expenses associated with buying a home, such as appraisal fees, title insurance, and attorney fees.

Rate Buy Down

Another advantage of a buyers market is the opportunity to secure a lower interest rate on a mortgage loan by buying down the rate. In a buyers market, sellers may offer credits to buy down a borrowers interest rate to incentivize buyers. This can result in lower monthly mortgage payments, making it easier for buyers to afford their new home.

It is important to note, however, that a buyers market does not mean the housing market has fully recovered from the effects of the pandemic, particularly when it comes to available home inventory.  Smart buyers will take advantage of these opportunities by hiring a professional Realtor to negotiate with sellers for the best outcome. This can make buying a home more affordable in the long run.

To read more about Buy Down Loans, click here. 

More Buyers Means More Competition

The recent downward movement of mortgage rates has attracted more buyers to the market. The MBA’s Market Composite Index, a way of measuring mortgage loan application volume, rose 27.9% from a week earlier, which is the biggest jump since March 2020. This is a clear indication that lower interest rates are encouraging more people to consider purchasing a home.

It is important to note, however, that while these lower interest rates may make purchasing a home more affordable, it does not mean that the housing market has fully recovered from the effects of the pandemic. Inventory is still historically low.  As additional buyers enter, or reenter the housing market, prices will begin to trend back upward, unless additional inventory suddenly becomes available.

Despite this, the decline in interest rates is a step in the right direction for the housing market. It is a sign that the economy is starting to stabilize, and it provides a glimmer of hope for those who have been impacted by recent inflation. Mortgage rates historically follow Consumer Price Index data, a measure of inflation.

As always, it’s important to do your own research and talk to your lender, as the interest rate and terms will vary by person and lender. If you need a referral to a few trustworthy lenders, The Svelling Group will be happy to introduce you to our preferred partners.

In conclusion, if you are thinking about buying a home, most people would agree that the first quarter of 2023 is the time to act.