Interest rate hikes icing down San Diego’s hot housing market

Rising interest rates are leading to a slower housing market in San Diego.

“It’s put a big damper on demand,” Jon Fields, a realtor with Keller Williams Realty San Diego Metro, said. He’s been a real estate agent in San Diego for a decade.

Fields said buyers who were once willing to get into bidding wars, with offers way above asking price, are now hesitant to get into the market.

“The market is still moving along, don’t get me wrong. But it’s not that 10-to-15 offers (are received) over the course of a weekend,” he said. “It’s more like maybe you put your home on the market on a Thursday, and maybe it takes a week or two to get a couple (of) offers or to get any offers.”

Fields said what he’s telling his clients is that the market is now simply “normalizing.”

The Federal Reserve raised interest rates again today, pushing them up by half a percentage point in an effort to fight inflation. It’s the seventh increase since March. Back then the benchmark was near zero, and now it’s just under 4.5%.

Matt Ficco, the CFO of California Coast Credit Union, said there was a borrowing frenzy in early 2022, when interest rates were near zero, and that it continued through late summer. But, he said, “Since then, when these rate hikes that really started to kick in we saw the volume started to taper off.”

Ficco said all those rate hikes, in a market where the median home price is $850,000, meant monthly payments were no longer affordable for many.

“If you’re buying a same house today that you bought a year ago, your monthly payment is now up by maybe $1,000 — even more in some cases. So it’s a significant increase to the consumer,” he said, adding that the same is happening with car loans. “We see consumers trying to extend their car loans out to beyond 72 months, (to) 84 months, in some cases 96 months or even 100 months. Those are significant terms to pay an auto loan.”

Ficco said the loan business is slowing way down for new home buyers. “Home mortgages have pretty much gone away,” he said. “We still are seeing some  borrowing on second mortgages or home equity lines of credit, where consumers are already in houses (and) are doing remodels (or) are adding on to their homes.” 

Fields had some advice for buyers: Have a plan, get pre-approved for credit — and ask themselves why they want to buy a home in the first place.

“If the  answer is, ‘I’m going to sell my home next year and try to make some money,’ I don’t know that this is the time for you to buy,” he said.

But he said buying does make sense for anyone who plans to stay in their home for five to ten years, especially in a rental market like San Diego. “Rental rates are so high, and you compare them to what your mortgage would be and they’re right on the same level, and it makes sense for you to buy,” he said.

Ficco also warned about a worrying trend with credit card use. “Consumers are using their credit cards to pay for these basic living needs, everyday living needs that they have and that’s not typically a good sign that we like to see,” he said, adding that the rising interest rates also affect those cards. He advised people to think twice about holiday spending so they don’t end up with a giant payment they didn’t expect in January.