Real Estate

The impact of higher mortgage rates

The matter of interest rates weighs heavily on the current market, for buyers and sellers alike. Photo: Loddar13 from Pixabay

Many would-be sellers are staying put rather than listing their homes for sale to avoid taking on a much higher mortgage rate when they purchase their next house. According to, this “lock-in” effect pushed inventory down to record lows across the nation during the spring.

New listings of homes for sale and the total number of listings have both dropped to their lowest levels on record for this time of year, which is fueling homebuyer competition in some markets and preventing home prices from falling further even amid tepid demand.

“Over the past three years, buyers and sellers were engaged and ready to deal. Right now, there is reluctance on both sides of the sale,” said Marcus Miller, MA, founder and broker at HELM Real Estate. “Sellers are reluctant because they have golden handcuffs — with the really low interest rates on their current home often at or below 3 percent.” 

“Buyers appear hesitant because there exists some job insecurity in the market, and interest rates are at twice the rate they were in 2021,” Miller continued. “Some people are feeling the need to keep free and mobile, and are wary of getting into a long-term relationship with a home and its mortgage. Even so, demand is still higher than supply right now.”


Redfin reported in June that nationwide roughly four in five homeowners with mortgages have an interest rate below 5 percent, and nearly one-quarter have a rate below 3 percent. It’s no wonder then that a near-7-percent mortgage rate is handcuffing homeowners. 

Just over one-quarter of U.S. homeowners who are considering listing their home in the next year would feel more urgency to sell if rates dropped to 5 percent or below. That’s according to a Redfin survey conducted by Qualtrics in early June. Roughly half would feel more urgency if rates were to drop to 4 percent or below, and just over three-quarters of homeowners would feel more urgency if rates were to drop to 3 percent or below — a situation that is highly unlikely any time in the near future.

In May, according to Ted Andersen with the Business Times, San Francisco’s single-family home sector continued to be stronger than the condo sector. 

What’s more, the condo market in the downtown/South of Market/Civic Center area — affected by a number of economic and social factors — was weaker than condo markets in the rest of the city. Of the listings for sale on June 1, 32 percent were single-family homes, and 68 percent were condos, co-ops, TICs, and townhouses.

The San Francisco Chronicle published a story in June that explored the cost of home ownership against the cost of renting. In San Francisco, the typical home is 139 percent more expensive per month to buy than to rent — among the highest “homeownership premiums” in the country.

In contrast, nationwide, the typical home costs 25 percent more to buy than to rent.

Homeownership carries definite benefits, including wealth-building opportunities, a fixed monthly cost, tax benefits, and the freedom to truly personalize your home. It’s been said, “When you own your home, your home pays you; when you rent, you and your home pay your landlord.”

But for some — including people who move around a lot and won’t stay long enough to build equity in their homes — buying makes less sense. People who opt to rent rather than buy the type of home they can afford might prefer to invest that money elsewhere.


What’s fueling the rent versus buy gap? Back to that recurring theme: the rise in mortgage rates. In the Bay Area, where prices are already so high, rate increases can translate into payments that are thousands of dollars higher.

Nevertheless, Miller is optimistic. He said that prime properties and those that are move-in ready are still in demand, and often sell right next to less desirable single family homes and condominiums that are in need of work and poorly priced, and as a result have been sitting on the market without an offer.

He believes the fact that Google, Apple, and Meta are insisting that employees return to the office — if only for three days a week — means more people will return to San Francisco and the Bay Area’s urban centers. As a consequence, demand for housing will only increase.

“Eventually, I know we’ll return to some level of normalcy, which means that San Francisco will recover from its current commercial vacancy and residential real estate deceleration issues,” Miller said. “Demand for living in this world-class city will be restored, and the market will take off again — reaffirming real estate as the extraordinary finite commodity that it is when you live in a city surrounded on three sides by water.”

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