The Impact of Rising Mortgage Rates on the Housing Market: What to Expect Next

The era of rock bottom mortgage rates that fueled a decade-long housing boom is coming to an end, as mortgage interest rates have surged to 5% for the first time since 2011. This rapid increase in rates, combined with already soaring home prices, is making homeownership more expensive for buyers in Southern California and across the nation.

Despite the rising costs, experts do not anticipate a significant drop in home prices in the near future. Factors such as a shortage of homes for sale, rising incomes, and a reluctance among homeowners to sell at lower prices are expected to keep prices on an upward trajectory, albeit at a slower pace than the current 17% annual rate in Southern California.

The impact of higher mortgage rates is already being felt in the market, with fewer people attending open houses, fewer multiple offers on homes, and a decrease in mortgage applications. Real estate professionals are reporting a cooling of the market, with fewer bidding wars and sellers facing challenges in making demands such as waiving loan and appraisal contingencies.

While demand may be slowing, home prices have not yet shown signs of decline. In March, the median home price in Southern California rose 16.7% from a year earlier, reaching $735,000. In Orange County, the median price surpassed $1 million for the first time. However, there has been an increase in the number of sellers reducing their asking prices, indicating a shift in the market dynamics.

As the housing market adjusts to higher mortgage rates, buyers and sellers alike will need to navigate a changing landscape. While prices may continue to rise, the pace of growth is expected to moderate, providing some relief to buyers in an increasingly competitive market.