Rising Mortgage Rates in California Threaten Homeownership Affordability and Supply

The dream of homeownership in California is becoming increasingly out of reach for many as mortgage rates continue to rise, according to housing economists. The surge in borrowing costs, with the 30-year fixed rate mortgage averaging 7.1 percent as of April 18, is expected to have a significant impact on the housing market in the state.

Freddie Mac’s chief economist, Sam Khater, noted that potential homebuyers are now faced with the decision of buying before rates rise even further or waiting in hopes of a decrease later in the year. In California, where housing prices are already among the highest in the country, the elevated mortgage rates will only exacerbate affordability challenges.

Oscar Wei, deputy chief economist at the California Association of Realtors, highlighted that rising interest rates will not only make it harder for prospective buyers to afford a home but also tighten the supply in the housing market. The median price of a home in California reached its highest level in seven months in March, further complicating the situation for buyers.

Danielle Hale, chief economist at Realtor.com, pointed out that the impact of high mortgage rates may vary across different parts of the state. While residents in San Francisco and San Jose may be able to afford higher down payments to offset the increased borrowing costs, those in Southern California, who typically make smaller deposits, will feel the burden of higher monthly payments.

Overall, the consensus is that the rise in mortgage rates will make homeownership unattainable for a large portion of Californian households, further fueling the affordability crisis in the state. As competition for homes intensifies and supply remains constrained, prices are expected to continue to climb, making the prospect of owning a home even more challenging for many.