How do rising interest rates impact housing affordability in Southern California?

The Southern California real estate market is facing a unique set of challenges as it navigates the complexities of rising interest rates. When the Federal Reserve increases rates, the cost of borrowing also rises. For potential homebuyers, this translates to higher monthly mortgage payments, which can exacerbate the existing affordability issue in a market known for its steep home prices.

For instance, with the average 30-year fixed mortgage rate climbing to 3.56%, a buyer looking at a home costing around $697,500 (the region's median price) will see their monthly payment increase significantly, which can price them out of the market. For those who've been saving for a down payment, the rise in rates can reduce the amount of home they can afford, leading them to either reconsider their budget or delay their purchase altogether.

Furthermore, with many homeowners locked into low-interest mortgages, fewer properties are being put on the market, leading to a continued supply shortage that feeds into the upward pressure on prices. The combination of rising rates and limited inventory means that first-time buyers, in particular, may find themselves increasingly unable to compete in this hot housing market.