When I got my first mortgage in 2000 my mortgage broker quoted me 8%, but when it came time to sign documents, I was surprised to learn the rate had jumped to 8.25%. Unbeknownst to me, my mortgage broker didn’t lock in the rate, gambling that it would go down and instead it went up. While it was only a .25% and it didn’t break the deal, I was still pretty unhappy and it definitely effected my monthly expenses. I only mention this because I’ve been hearing stories lately of buyers being taken by surprise by fast rising rates, and having to cancel escrows as a result (https://money.com/home-sale-cancellations-rising/.)
Here's how the process works, and falls apart. Mortgage brokers write pre-approval letters for their buyers as they start to look at properties. The issue is it can take time after the letters are issued to find a property, and by the time a property is located the interest rates have risen and the property is no longer affordable. That’s why for the past six months whenever I’ve received an offer on one of my listings, I make sure to check directly with the buyer’s mortgage broker to see if they can still buy the house. These calls have always been industry best practices, and part of our fiduciary duty as Realtors.
Recently one of the mortgage brokers I work with put out a video addressing the issue of rising rates. It’s vital for home buyers, mortgage brokers and Realtors to all be on the same page because rates have risen so dramatically in such a short time. Rates are now solidly in the mid 7’s, which is unnerving to say the least, and potentially destabilizing the housing market. I’ve written before that the Bay Area and Marin in particular is somewhat insulated from rising rates because the amount of cash buyers put down in this part of the country. The higher rates are still hitting hard though, and I believe we have a growing contingent of buyers on the sideline now as a result of being priced out of the market.
There are only three possibilities from here:
(1) Rates stay around this level, and as a result they become normalized by next spring. We saw that happen last spring when buyers became accustomed to rates in the 6’s over the winter. In the event rates are still in the mid 7’s we will likely have less buyers than a normal spring, but the market will still be moving.
(2) Rates drop! If rates drop into the mid-6’s by next spring there will be more buyers, more multiple offer situations and the market will be moving fast once again. That’s music to my listing agent ears!
(3) Rates go up into the high 7’s and maybe even the 8’s. If that’s the case, then you better strap in because it’s going to be a rough ride.