High interest rates prompt new tactics in San Mateo County home finance

“That’s a really interesting strategy that is pretty popular right now,” said Supreme Lending Regional Manager Danielle Pollack. “We anticipate that rates will come down over the next couple of years. Obviously there’s not a guarantee … but if [buyers] can kind of make it through those first couple of years, then the seller doesn’t have to reduce the value of their house, and they just give it in the form of a credit to the buyer.”

The national weekly average for 30-year fixed rate mortgages continued climbing over the past week, hitting 7.79% as of Oct. 26. And while a recent Mortgage Bankers Association report showed the share of adjustable rate mortgage applications was the highest since November 2022, Emerson Financial Loan Officer Michelle Emerson isn’t noticing that trend in San Mateo County.

“If I go to price an adjustable rate mortgage, those rates are actually on the higher side than the 30-year fixed … nobody’s asking for an adjustable rate mortgage with us,” said Emerson, also noting that fluctuating payments are not appealing for people under the circumstances. “It’s not something that’s consistent that you can rely on, especially right now with everybody’s budgets getting squeezed with gas prices and inflation and food prices. Everything’s going up.”

And while she acknowledges that buydowns are more common with increased borrowing costs, the high demand for housing in San Mateo County still means that sellers get the final say in whether to agree to them or not. 

“The Bay Area is still the Bay Area. I have one client who’s trying to buy a condo and keeps putting in for the buydown, but [the seller] just doesn’t want to bite at that,” she said. “That money has to come from the seller, so most sellers might go ‘I don’t want to do that. I’ll take this other guy over here who didn’t ask for a buydown seller credit.’”

The number of active listings in San Mateo County on Oct. 1 was 9% lower than the same time last year, according to a recent Compass report. And the number of active listings in the county has dropped by about 80% over the past 13 years, MLS data showed. 

The incentive to sell right now is also not very high, especially if that means you’ll have to swap out a low interest rate for a high one, said Pollack. 

But even with a lower supply, which often hikes up housing prices, expensive borrowing costs have some silver lining for buyers. Both Emerson and Pollack said that with an increase in interest rates, there are fewer instances of houses being sold significantly over asking price. 

“What people quickly forget is when interest rates come down, the demand goes up and that drives prices up,” said Pollack. “If you were to buy a house for a million dollars today, and the interest rate was 8%, but suddenly the rates go down, and now that house goes $200,000 over asking, which is not uncommon in any market, especially San Mateo County … . It is more expensive today, but also the houses are more level. They’re not going for half a million over asking anymore.” 

In addition to more realistic home values, buyers can also benefit from other underwriting and financing approaches, apart from buydowns. Interest-only products are more readily available, and many wholesale mortgage lenders have updated their guidelines to allow for higher debt-to-income ratios for jumbo loans, or loans that are used to finance high-value properties. Where an acceptable ratio was previously capped around 43%, Emerson said a 50% ratio is now more commonplace. 

Both buyers and sellers are also coming to terms with the fact that pandemic-era interest rates are not the norm, and a wait-and-see approach has backfired for many. 

“I’m not super bullish on the next two quarters, I’ll be honest. We’re going into an election year. I don’t know for sure, but I think the Fed will maybe not be as aggressive as they have been this year,” said Pollack. “But I still think we’re probably 12 to 18 months out before we see a more palatable change.”

alyse@smdailyjournal.com

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