With the constant buzz about increasing home prices and increasing interest rates, we find there to be a lot of confusion. To help clear things up, we bring you a clear explanation from our friend John Holmgren, trusted mortgage advisor and branch manager of Holmgren + Associates.
Mortgage Outlook: Rising rates and home prices make for a challenging home buying environment.
The last year has seen a consistent rise in mortgage rates and home prices. This has impacted our real estate market in a number of important ways:
- Interest rates: The Federal Reserve Board began a cycle of tighter credit conditions in 2016 that has resulted in home mortgages rates rising from an average of 3.75% in the Fall of 2016 to 4.75% now.
- Home prices: Average home prices in Oakland have risen 12.6% in the last year.
- Housing affordability: The impact of rising rates and home prices is such that home buyers qualify for about 7% lower home price than they did last year.
This tends to force homebuyers into smaller homes or less desirable neighborhoods. Fortunately, Oakland has many neighborhoods, often nearly contiguous to higher-priced areas, that are experiencing “rebirth” because of their more affordable prices. A great example of how this can work is the Glenview neighborhood, previously shunned by young families because of the low test scores at the Glenview Elementary school. A steady ingress of entry-level homebuyers has pushed the average price in that neighborhood to $1.142 MM and has resulted in dramatic improvement in elementary school performance.
Rockridge’s adjacent neighbor, the happening Nobe district, is another terrific example. It doesn’t stop at neighborhoods either – the cities adjacent to Oakland have also experienced an increase in both home prices and quality of living, with new restaurants and shops opening all the time.
Although interest rates have gone up, they have ranged from 18.63% in 1981 to as low as 3.31% in 2012 so we are still near historic lows. Once you find the right home, it still is a terrific time to buy!
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