What Interest Rate Hikes Mean for the Los Angeles Real Estate Market

concept image of interest rate hikes and real estate

Homebuyers throughout the Southland and across the nation enjoyed rock bottom interest rates for many years, which fueled a buying frenzy throughout Los Angeles and caused values to skyrocket. However, the recent interest rate hikes from the Federal Reserve in 2022 have already impacted the industry.

With these interest rate changes, how will the buying experience change for those looking to buy a home in Southern California?

What Interest Rate Hikes Mean for the Los Angeles Real Estate Market

Inflation Woes and Recession Fears

The fear of a recession and high inflation influenced the Fed’s decision to increase interest rates. Policymakers expect rates to climb about two percent throughout 2022 and hope that the increase will curb inflation without harming the economy.

Many industry insiders expected rate hikes this year even before the Fed made its move. Homebuyers saw their rates increase from 3.39 percent in December 2021 to 5.57 percent as of May 2022 for 30-year fixed-rate mortgages.

What will these interest rate increases mean for Los Angeles-area homebuyers? It’s unlikely that prices will fall; however, prices may stall somewhat. The enormous increases seen over the past year probably won’t continue. After all, buyers have started to rethink whether now is the time to buy.

Some Good News for Buyers

Despite the financial impact of an interest rate increase of more than two percent, the news isn’t all bad when buying a home in Southern California.

Some buyers may decide to wait on purchasing a home. So the reduced competition may benefit families who aren’t in a position to win biddings wars or pay tens of thousands of dollars over the asking price.

Bidding wars often price out buyers looking at homes at the top end of what they can afford. With fewer bidding wars occurring, buyers may find it less stressful to make an offer on a new home. It’s unlikely that home prices will fall, but the intense buying environment might become easier to navigate.

Will Home Prices Decease for Those Who Wait?

Home prices probably won’t fall in any meaningful way in Southern California in the near term, and it might take years for prices to truly level off and match the rest of the country. In fact, for the first time in recorded history, the median price of a home in Orange County is now greater than $1 million.

Despite that shocking figure, homebuyers shouldn’t feel that prices will continue to skyrocket. If anything, the momentary lull may make it marginally easier to find a home and get an offer accepted.

How does one compete in the Southern California real estate market when homes remain highly in demand? With an experienced mortgage professional from Peak Finance Company.

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