Mortgage Rates Rose to Nearly 7%

NEW YORK (CNNMoney.com) -- Mortgage rates made their largest upward movement in nearly 4 years, and the 30-year fixed-rate reached its highest level since July 2006, Freddie Mac said Thursday.

Will this be the final straw that breaks the camel's back or in this case pops "the bubble?" Rising rates have stunned us this week with the sharpest increase in four years. Per CNNMoney.com:

Rising rates, among other factors, have caused the MBA and the National Association of Realtors to push back their forecasts for a home price recovery. Both groups are now looking to early 2008, compared with a previous outlook for mid-2007.

Still, the Bay Area is unique and we find reason to remain optimistic. We have not seen marked value depreciation of the homes in our marketplace. Because our geography (specifically the S.F. Bay to the west and East Bay Regional Park lands to the east) creates a natural boundary around our buildable land, housing stock is limited. Residential sales in this area are simply not affected by large scale developers or urban sprawl. Meanwhile, the University, our moderate climate and rich cultural offerings continue to bring new buyers to the area. Currently buyer demand continues to exceed the supply of housing. Multiple offers are less common, but still occurring.

We aren't seeing anything as dramatic as a pop of the bubble; however the market is treating buyers more justly. A bit more balance is a good thing. The influence of the National press has dampened the frenzy of the recent past. Buyer's mindsets have noticeably changed. During the height of the bidding wars, the Bay Area real estate market was much like a game of musical chairs: Buyers scrambled for a spot to plop their derrière when the music stopped, and they were often compelled to offer Sellers a premium to just to get a seat. There was legitimate fear in the marketplace as housing prices outpaced salary increases. If you didn't buy your way in, you may have quickly gotten priced out. That fear dissipated as the market mellowed. Now Buyers sense that they have more time to make more prudent decisions. Even in the cases of multiple offers, competition is not inciting the previous returns of 20-30% beyond the list price. Overbids seem to be a bit more modest, in the 7-12% range (with a few tantalizing exceptions still tickling the grape vine.)

This brings good news to Buyers. In addition to the tempering of the competition, buyer contingencies have regained some strength. In particular, buyer inspections have returned along with the negotiations associated with their findings. Unfortunately for all involved (this is an emotional process), we have also seen an increased number of homes "back on the market" as buyers struggle to develop a well rooted sense of value in what has been a changing market.

If you are a hesitant buyer, here are some more reasons to throw caution to the wind: First, historically speaking rates are still low (rates have reached double digits in the past.) Act now to take advantage of current rates. If interest rates continue to rise, any increases will continue to decrease affordability. Second, your life plans can also help dictate if the time is right for you. If your plan is to stay put for more than five years, your investment risks lessens. Despite dips in the value of real estate throughout the last century, California's housing values consistently reflected an overall gain. If you can wait out any turn in the market, time can help protect your investment. Third, owning your own home posses significant merits beyond the bottom line. With residential real estate, you also get the intrinsic benefit of the "use and enjoyment" of your own home. Lastly, increased rates and gloomy press reports are only part of the story. CNN says it best:

Mortgage rates, of course, are only one third of the affordability equation that plays out in the housing market. There's also home prices themselves and household incomes, both of which have been positive lately for buyers, according to DeKaser.

For Buyers and Sellers: Berkeley Hills Realty works hard to improve the odds in your favor. We remain ever vigilant and strive to think outside the box as it relates to all new information. For our Sellers, we have put new strategies in place designed to expand market exposure and to increase a property's perceived value. We also consult with our Buyer clients on factors that create and protect value as it relates to the purchase of their new home. As we embrace this new marketplace, we invite you, your friends, and family to call with any and all real estate related inquires. As always, we are happy to share our thoughts.