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You are here: Home / Blog / How Rising Interest Rates Are Affecting Your Home Affordability

Sherry Chen / March 29, 2021

How Rising Interest Rates Are Affecting Your Home Affordability

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.

Rising-interest-rates-vs-home-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.

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Sherry Chen, Realtor

Kappel Realty Group

Compass

DRE #02109149

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✨ San Diego Realtor | Compass
🏘 ADU Specialist
🏆 SDAR Gold Award 2021
🎓 UCLA Alum
DRE 02109149
Kappel Realty Group

Sherry Chen
🌟 JUST SOLD!🌟 An incredible triplex in the h 🌟 JUST SOLD!🌟 An incredible triplex in the heart of University Heights/North Park. This incredible unit mix offers a 3BD/2BA 1500 sq ft front house with TWO 2BD/1BA units behind. ⁠
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Now, let's get into the zoning. This property has a unique overlap of zoning including #CompleteCommunities and multifamily density, this 7,000 sq ft lot is for up to 36 units! ⁠
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I am so happy for my buyers who are about to get married this fall. This will be their first home together and it was important that their first property be an investment. My buyer was attracted to this property for its incredible development potential, and plans to develop within the next 5 years. This listing also came with the due diligence and feasibility reports necessary for development. In the meantime, they plan to convert the huge 4-car detached garage into another ADU for added cashflow 💰⁠
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I could not be happier for my (almost) newlywed clients who plan to hold on to this property into retirement. We initially lost this offer to an all-cash buyer. By maintaining consistent communication and rapport with the listing agent, I was able to secure this incredible deal for my buyers. It just goes to show that although it's a competitive market, working with the right agent makes all the difference. ⁠
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Congratulations to my buyers for securing an incredible first home and investment property which will change their lives forever!⁠
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Sherry Chen⁠
sherry.chen@compass.com⁠
@KappelRealtyGroup⁠
Compass @sandiegocompass⁠
DRE 02109149⁠
Equal Housing Opportunity⁠
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#sherrychenrealty #theaduagent #investmentproperty #realestateinvesting #sandiegorealestate #universityheights #northparkrealestate #sandiegomultifamily #multifamilyproperty #realestatedevelopment #infilldevelopment #sandiegohomes #multifamily #firsttimehomebuyer
Loved volunteering today at the @sdhumanesociety w Loved volunteering today at the @sdhumanesociety walk with @kappelrealtygroup @kristinekappelrealty @marel__! It was a gorgeous day meeting all the cutest pups in San Diego! 🐶🐕🦮🐩🐕‍🦺🐾🦴 #sdhumanesociety #sandiegodogs #sandiegoevents #pointloma #libertystation #sandiegovolunteer
✨JUST SOLD ✨Congratulations to my amazing buye ✨JUST SOLD ✨Congratulations to my amazing buyers @kaekae_janae and @jakevayda!

Jake and Kaelia are quite impressive. They’ve just purchased their first home in San Diego during the most challenging market ever — in their 20s! Over the last few months, we got beat out on 16 offers, but Jake and Kaelia stayed persistent and determined.

When we found this home, we knew it was perfect because one of their primary goals is rental income potential. The home comes with a large detached garage that they plan to convert into an ADU. They are also taking advantage of one of California’s amazing grant programs to help them build their #ADU!

This property will not only generate monthly cash flow, but is also helping them build their wealth and net worth. 💰

Congratulations Jake and Kaelia for making the decision to buy and securing your first home in San Diego! 

Thank you to @willflo7 for helping our clients make their dream come true! And thank you @curtis_westivy_homeinspections for guiding us through a thorough home inspection! 

Sherry Chen
Kappel Realty Group | Compass
DRE 02109149
Equal Fair Housing

Looking for a property with ADU potential? Get in touch with me at 📧Sherry.chen@compass.com

#sherrychenrealty #theaduagent #accessorydwellingunit #sandiegoadu #oakpark #oakparkrealestate #sandiegohomes #justsold #sandiegorealestateinvesting #firsttimehomebuyer #garageconversion
So honored to have met @robreffkin CEO and founder So honored to have met @robreffkin CEO and founder of @compass today at our 4 year anniversary! In my first year of brokerage I sold over $15M in real estate thanks in large part to the incredible technology and network that Compass offers. Thank you Robert for visiting us in San Diego! 

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🌟 JUST SOLD! Congratulations to my clients for 🌟 JUST SOLD! Congratulations to my clients for securing this turnkey, beautifully remodeled home in North Clairemont Mesa. ⁠
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My clients are residents of Chicago, but split their time between there and San Diego where they have extended family. They'd been wanting to find a second home in our beautiful city for a long time but didn't know where to start. ⁠
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Additionally, they wanted a home where they could build a large ADU for multigenerational living and provide a home for mom. 👵⁠
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The first step was working with @chadbaker.ccm who crafted the perfect loan for them to be able to finance their second home. After a short underwriting process, we were well positioned to start shopping with NO loan contingency. This really helped us gain a competitive edge and enabled us to stand out against multiple offers. 💪⁠
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My buyers could not be happier with their new home where they can bring their family together. This story truly encapsulates my mission as a real estate advisor. The ability to help families find their place together, especially through ADUs, is what I love most about what I do on a daily basis. ⁠
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🏠 Looking for your next home? Contact me at 📧sherry.chen@compass.com.⁠
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Sherry Chen⁠
The ADU Agent⁠
Kappel Realty Group | Compass⁠
DRE 02109149⁠
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Thank you @redfinrealestate for featuring me on yo Thank you @redfinrealestate for featuring me on your latest article on ADUs! Check out my pro tip by clicking on the link in my bio. ⁠
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Hint: I share how you can identify properties with the potential to build not just one, but MULTIPLE #accessorydwellingunits! 😉⁠
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Looking for a property with ADU potential? Get in touch with me at 📧 sherry.chen@compass.com.⁠
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Sherry Chen⁠
DRE 02109149⁠
Kappel Realty Group | Compass⁠
Equal Fair Housing⁠
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#sherrychenrealty #theaduagent #kappelrealtygroup #redfin #compass #compassrealestate #sandiegorealestate #realestateinvesting #adu #grannyflat #multifamilyrealestate #accessorydwellingunit #casita #sandiegoadu ⁠
JUST SOLD! Congratulations to my buyer for securin JUST SOLD! Congratulations to my buyer for securing this property on the 1st day it hit the market. ⁠
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My client was highly motivated and was ready to move quickly for the right deal. When this property hit the market, we were one of the first to see it and submitted a strong offer right away. ⁠
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By understanding the seller's needs, we were able to strategize an offer that got accepted quickly within 24 hours. ⁠
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This home is conveniently located in Birdland, a pocket of San Diego that's quietly tucked way yet centrally located and accessible to all major freeways. Easy access was key for my buyer. ⁠
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Complete with a beautiful, sparkling pool, my client is excited to have his grandkids over and teach them how to swim in his very own backyard. ⁠
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Crafting the right offer at the right time is key to getting an offer accepted in today's market. It also takes a motivated buyer who can move quickly to get the deal. It's a team effort!⁠
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Ready to buy a home this year? Get in touch with me today and I'll show you the strategies to get your offer accepted in today's market. ⁠
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Sherry Chen⁠
Kappel Realty Group⁠
Compass⁠
DRE 02109149⁠
Equal Fair Housing⁠
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⭐ JUST SOLD! Congrats to my Bay Area clients who ⭐ JUST SOLD! Congrats to my Bay Area clients who moved down to San Diego to be closer to family. 👪⁠
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We were able to beat out 16 offers -- without being the highest priced offer. 🙌⁠
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Being communicative, transparent and professional can certainly make or break a deal, especially in today's market. ⁠
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My clients are so excited to call this their home for years to come, where they will start their family. Best of all, they look forward to endless pizza nights as this home comes with a custom-built wood-fired oven! 🍕⁠
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If you're looking to buy a home this year, let's talk. I'll show you the many ways you can compete in today's market without being the highest priced offer. ⁠
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Get in touch with me today at 📧sherry.chen@compass.com ⁠
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Sherry Chen⁠
Kappel Realty Group⁠
@compass⁠
DRE 02109149⁠
Equal Fair Housing⁠
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#sherrychenrealty #theaduagent #eastlake #eastlakegreens #eastlakechulavista #eastlakerealestate #chulavistarealestate #bayareamovingtosandiego #sandiegorealestate
🌟 2021 was my first full year in real estate wh 🌟 2021 was my first full year in real estate where I sold 26 units and over $15M in sales volume. I'm so honored to receive the Gold award from the San Diego Association of Realtors @realtorssd 🏆⁠
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Thank you to all my buyers and sellers this past year for trusting me with purchasing their first home, investment property, and listing their homes for top dollar. ⁠
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I'd especially like to thank my team @kappelrealtygroup for the endless mentorship and support in helping this rookie hit the ground running! 🏃🏽‍♀️
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Cheers to another successful year in 2022! I look forward to continuing to help my clients, future and past, build long-term wealth through real estate. 📈⁠
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If you're thinking of buying or selling real estate this year, reach out for a free consultation. ⁠
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Sherry Chen⁠
Kappel Realty Group⁠
@compass⁠
DRE 02109149⁠
Equal Fair Housing⁠
www.sherrychenrealty.com⁠
sherry.chen@compass.com⁠

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