Since the pandemic began in March of 2020, the real estate market in San Diego has exploded.
Due to record low inventory numbers coupled with record high buyer demand, the San Diego real estate market is now one of the top 3 hottest real estate markets in the nation. In fact, home prices increased nearly 12% from 2019 to 2020.
Now, what has exactly fueled this hot market? Low interest rates.
Interest Rates are Rising
Interest rates dropped to historic lows in 2020 when the pandemic first began and were as low as 2.85% throughout the majority of the year.
Fast forward now to March of 2021, about one year later after the pandemic first hit, and rates have risen close to 3.25% at the time of this writing. In fact, rates climbed a quarter of a percent just in the last few weeks alone.
As you can see in the chart above, interest rates have seen a drastically sharp increase from February to March 2021.
How are rates rising so quickly?
With the rollout of the vaccine, the economy is recovering. Businesses directly impacted by the pandemic, such as restaurants and retail to name a few, are opening back up. With a stimulating economy, also comes higher interest rates.
Interest Rates vs Home Price Affordability
Now, here’s the real question. What does a higher interest rate mean for your home purchase?
In a nutshell, a higher interest rate reduces the amount of home purchase price you can qualify for.
Check out the chart below which shows the direct correlation of rising interest rates and the affect on home purchase price affordability.
You’ll see that from an interest rate of 2.65% a buyer could qualify for a home purchase of $930,000. Fast forward to today’s interest rate of 3.25%, this purchase ability has reduced to $861,250.
Experts say that the interest rate has a potential to hit as high as 3.75%-4% by the end of the year.
If you’re a buyer in today’s market, think about what a higher interest rate could mean for your home purchase.
3 Reasons Why Waiting Will Cause You to Pay More
1. Interest Rates are Rising
For those of you buyers out there who have been searching for months, you might be feeling fed up with today’s market due to constantly being beat out by other offers (trust me, I know). As a result, you might be worried about overpaying by purchasing a home at the height of the market. These are valid concerns. However, remember that your interest rate is a 30-year commitment.
Overpaying in today’s market at a lower interest rate, will mean increased savings on interest over a 30 year term. As illustrated above, interest rates are continuing to rise, and higher interest rates means the ability to buy less house. Don’t wait until interest rates climb to a level that will price you out of your market.
2. Home Appreciation Values Continue to Climb
Due to the massive demand of buyers, including out of area buyers from New York, San Francisco and Seattle, home prices in San Diego have skyrocketed during the pandemic. This increased demand will continue to fuel home appreciation rates in San Diego.
According to CoreLogic, San Diego home prices will increase 8% this year and another 8% next year. For perspective, the national average is 4%.
If you’re worried about overpaying today, you can easily see that waiting to buy will result in paying significantly more due to both home appreciation values and increased interest rates.
3. Costly Effects of Inflation
With the amount of government stimulus dollars flooding the economy, inflation is the new reality. By waiting to buy, you may be risking paying much higher prices not only due to home value appreciation, but due to inflation and weakening of the US dollar. That means a house worth $500K today, may be worth much less next year.
The Best Time to Buy is Today
If you’re waiting to buy, you may want to reconsider. Yes, the market might be tough right now, but it’s still possible to secure a deal in today’s market. The key is to work with a real estate professional who can navigate today’s high stakes to help you strategically beat out other offers and secure you a home while you can still afford it.