How Rising Mortgage Interest Rates Helps Buyers in Today's San Francisco Housing Market
In this video, real‑estate professional Austin Klar explains how today’s higher mortgage rates—combined with a recent drop in San Francisco home prices—create a unique buying environment that can actually save buyers money both upfront and over the life of the loan. He walks through detailed numerical examples comparing a $2.5 M home at a 3 % rate with a $2 M home at a 6 % rate, showing how a lower purchase price reduces down‑payment requirements and overall monthly costs when property‑tax differences and seller concessions are considered. Klar describes how motivated sellers are offering concessions, especially interest‑rate buydowns, to make deals more attractive. He advises buyers not to wait for rates to fall, explaining that even if rates drop, refinancing can capture the lower rate later. Throughout, he emphasizes focusing on total monthly cash flow rather than the nominal rate, and he invites viewers to contact him for personalized assistance. The video concludes with a call to action to subscribe and watch related content on price trends.
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But there are actually ways that you can use higher interest rates to your advantage that can not only save you tens of thousands of dollars, if not more, upfront, but also save you money on the monthly payments in the long run. In this video, I'm gonna break down how to use today's market environment and higher interest rates to your advantage so that you can get the best bang for your buck on your home and eventually put you in a position better off than you would've been had you bought in a lower interest environment a year or two ago. This is Austin Klar, your lawyer turned real estate agent and real estate developer in San Francisco. I've lived in multiple neighborhoods all across the city, giving me in-depth firsthand knowledge of what it's like to both live and work in San Francisco. If you're thinking about relocating or interested in more information about the market, definitely reach out to me. My contact information is in the description below. I will personally answer every call, every email, every text, and I would be more than happy to help you. And if you like videos just like this, please consider subscribing to my channel and don't forget to click the bell so you're alerted every single time I post a video. All right, so this video is all about higher interest rates and how the real estate market that higher interest rates have created, especially in San Francisco, can actually work to your advantage as a buyer. So as as we've seen over the past several years, interest rates can fluctuate pretty wildly. At least in the last year, they've doubled from around 3% to where they sit today at almost 7%. Everyone in today's market is looking back at 2021 and early 2022 thinking to themselves, "I should have bought when interest rates are low because since then interest rates have gone up a lot." I'm going to explain the market conditions that that rise in rates has caused in San Francisco and how it actually can work to your advantage as a buyer. Rising interest rates have caused a lot of home buyers to put their home buying plans on pause and wait things out on the sideline. The mentality of a lot of people who are thinking about buying a home today is, you know, I'll just wait till interest rates go down and then I will get back into the market. People see higher interest rates and they think higher monthly payments, so they just wanna wait things out. And what that change in mindset has done is really transformed the San Francisco real estate market. Days on market went from a low of about 14 days in March and April of 2022 for a single-family home up to a high of 46 days in January of 2023. Less people are out there looking for homes there's less demand for homes than there used to be. So competition has gone down, which means the average home just simply stays on the market longer. It's harder to find a buyer for that average home. And what's happened as a result of that lower demand is that prices, at least in San Francisco, have come down and they've come down quite significantly. That hasn't happened everywhere, but it has happened pretty demonstrably in San Francisco. The average price of a single-family home peaked in March of 2022 at about $2.5 million. And At the time that I'm filming this video, the beginning of March of 2023, the average price of a single-family home is about $2 million. So there's been a $500,000 decrease or about 20% from the average price from a little bit over a year ago. And for condos, the average price peaked at about April 2022 at about $1.5 million, and they're down now to about $1.3 million as of last month. So about $200,000, about 13%. Most of the headlines you see today about interest rates talk about how the same mortgage now costs more money money per month because interest rates have gone up. But what the headlines don't tell you is that, at least in San Francisco, because the cost of homes actually is lower, you don't need the same size mortgage to buy the same home that you were looking at, let's say, a year ago when interest rates were a lot lower. So let's just use the average prices that I just went over as an example to illustrate this. Let's say you were putting 20% down on the $2.5 million home a year ago when interest rates were 3%. 3%. Well, 20% on a $2.5 million home is $500,000. Today, the average home costs $2 million, which means if you're putting 20% down, you only need $400,000. So you need $100,000 less today than you did a year ago to get into the same average home. That means on the $2.5 million home, you put $500K down, you have a $2 million mortgage. If it's a $2 million home, you put $400K down, you have a $1.6 million mortgage. So you have a $1.6 million mortgage today versus a $2 million mortgage a year ago, and you have $100,000 extra in the bank 'cause you only needed $400K down. So just by virtue of prices coming down, you've actually saved $100,000 or you've been able to get into a home faster than you otherwise would've because you didn't need to wait to save up that extra $100,000. So now you're probably saying, yeah, prices are down and maybe my down payment's lower, but my monthly is gonna be way higher. Let's break that down, 'cause that's actually not true. So let's compare the $2 million mortgage at 3% to the $1.6 million mortgage at 6%. And I'm using 6% instead of almost 7% because for a $1.6 million loan, you're likely going to need a jumbo loan, which traditionally has lower interest rates than the average 30-year fixed mortgage rate. And as of today, the average rate for a jumbo loan is right at about 6%. So I'm gonna compare 3% on a $2 million mortgage to 6% on a $1.6 million mortgage. Let's see how it shakes out. Your loan payment on the $2 million loan is $8,432 a month. Your loan payment on the $1.6 million mortgage at 6% for principal and interest is $9,593 a month. So the difference there is about $1,160 a month. But your monthly payment for a home is not just your loan payment. You also have to take into account property taxes, and property taxes are based on the purchase price of your home. So the higher the purchase price, the more in taxes you pay. Property taxes and fees on a $2.5 million home are about $3,333 a month, and on the $2 million home, they're about $2,666 a month. So your property tax difference is about $667 a month. That means overall, the difference in your monthly payments between your $2.5 million house with a 3% rate in your $2 million house with a 6% rate is only $494 a month. So you save $100 grand upfront on that down payment, but you do have to pay an extra $494 per month. If you do the math, it will take you almost 17 years, 202 months, for that $494 to add up to the $100K that you saved day one when you bought this house. And that's assuming you don't even take that extra $100K and go invest it somewhere. But ask yourself, even if you don't wanna invest it, even if you just put it under your mattress, Is it worth paying an extra $500 a month to save $100 grand upfront? Different people will probably answer that differently. But the benefits of this higher interest rate market, at least in San Francisco, don't end there. Because there are fewer buyers out there actually looking for homes, sellers who are really motivated to sell their homes are getting creative about ways to convince buyers to make offers. Even in today's environment, there are still people who need to sell their homes. People are still getting divorced. People are still getting married and moving in together. People's relatives pass away and the family needs to sell their house to settle the estate. People are still relocating for jobs and needing to sell their home here and buy something somewhere else. There are lots of reasons why even in today's market, sellers are still selling their homes, and to get buyers interested, they're offering a record number of concessions to buyers. What does that mean? It's not reducing list prices. It's separate from that. Concessions often come in the form of credits to certain things that the buyer might otherwise pay for. For example, if the buyer wants certain repairs done to the house, a seller can credit some costs so that the buyer doesn't have to come out of pocket extra to pay for that. In today's market, another concession sellers are offering fairly often is an interest rate buydown. That means the seller is giving a credit to the buyer and using the money of that credit to prepay interest to the bank. So when the bank gets a prepayment of interest, the bank is actually lowering the interest rate further than the prevailing market rate for the buyer. And depending on the structure of the buydown, it can be as little as a quarter a point or half a point, or as much as 2% on an interest rate. In the crazy pandemic market with low interest rates, when every home was getting a million offers on it and going for way over ask, sellers didn't have to do that. They didn't have to offer buyers anything because there was so much demand for housing. Because of higher interest rates, That's not the case anymore. Sellers are getting creative to get buyers into the market and using concessions to help that. So the comparison that I just did comparing the $2 million mortgage at 3% versus the $1.6 million mortgage at 6%, that's actually not a true reflection of reality because in reality you can negotiate an interest rate buydown and get your interest rate lower than that 6%. So remember the monthly payment for the $2 million loan for the $2.5 million house at a 3% interest rate was $11,765. $1,000 a month. The monthly payment with taxes for the 5.5% interest rate on a $1.6 million mortgage for the $2 million home is $11,751 a month. So in reality, if you push the seller for an interest rate buydown or use some of the money you saved up front when you saved on that down payment to prepay a little bit of interest to get your rate down, your rate's gonna be lower than the prevailing rate and your monthly payment, as I just demonstrated, is actually gonna be lower than had you bought in the 3% interest rate environment because the cost of homes has come down. So now you have a lower monthly payment, you've saved a bunch of money upfront that you can now invest or put into renovations of your property or put into a college fund for children or whatever it is you want to do, put it toward furniture for the home, whatever it is you want to do because you bought in today's market environment and not the crazy pandemic market where everybody was offering way over ask even though there was a lower interest rate. A lot of people are still waiting on the sidelines because Yeah, notwithstanding everything I just said, they just don't wanna have to deal with higher interest rates. They want a lower interest rate. I strongly believe that rates will come down as inflation gets under control, but I don't know that 100% for sure. Nobody knows that 100% for sure. And if they tell you that they do, they're lying to you. Nobody has a crystal ball. All we can do is use historical data to make predictions about the future. And historically, inflation and mortgage interest rates tend to be correlated. As inflation gets under control, we should expect interest rates to come down as well. But if rates go up or they stay the same, then you waiting for rates to come down didn't help you at all and actually hurt you. Instead of trying to time the market, take the guesswork out of the equation. If you buy a house today, let's say you get in at a 6% rate, there are only 3 things that can happen. Interest rates are either gonna go up, in which case you locked in a 6% rate today, you now have a lower rate than the rate That's tomorrow. Great. Interest rates might stay the same, in which case, okay, it's the same as, as you got, so no harm done. Or interest rates might come down. Well, guess what? You're not stuck with your 6% rate. You are able to refinance your mortgage to take advantage of that lower rate. What does refinancing mean? It simply means taking out a new mortgage at the lower rate and using that money to pay off your old mortgage. So you're left with just one mortgage. At the lower rate. Because you can get out of your interest rate if rates go lower, I always tell people not to focus on the actual rate itself, but just focus on the amount of money you're actually paying every single month. If you can afford it, and it's for a house you love, and it's the right time for you and your family to buy, then the rate is almost irrelevant. Whether it's 10%, 20%, whatever it is, if you can afford $8,000 a month and you love this house for $8,000 a month, go for it. And when rates eventually come down, you'll end up paying less than $8,000 a month and you will have saved money upfront on the purchase because of where home prices are at today than they were before. So let's say you bought that $2 million home today at 6% and you're paying $12,259 a month including taxes. Let's say interest rates go down to 5%, you refinance your mortgage, you were paying 6%, now you're paying 5%, your payment is now $11,259 a month. Mm-hmm. $565 a month. So now you've bought your house for less money and you're paying less per month than you would've had you bought when interest rates were 3%. You can change your mortgage interest rate. You cannot change the purchase price. Once you have bought the home, you are stuck with whatever price you bought at. I firmly believe that as inflation gets under control, interest rates will go down and the higher payments that you're paying right now, they're not gonna last forever. Certainly not for the 17 years that it would take to match the amount of money that you saved on that down payment. And if interest rates do come down, demand is going to go back up and the prices of homes are going to go back up. I have a completely separate video on why I do not think prices are going to crash in 2023. Feel free to watch it. It has to do with housing supply versus demand, which is one of the fundamental principles underlying the real estate market like any other market. I do not believe that there's a lot of downward momentum left for prices. I think we've largely leveled off and found the bottom for home prices. I think we've largely leveled off and found the top of mortgage rates. Rates are going to come down, prices are going to go up. There is a limited window right now to take advantage of that environment of less demand to get the most advantageous terms for you when you buy a home. So if you are ready to buy, it's the right time for you and you found the home you love, don't wait just because of interest rates because that home might not be available when you're ready to buy. Rates are going to sort themselves out. But if you try to time the market and play that guessing game, you could miss out on an opportunity. Mm-hmm. Opportunity to get into a home that you really love. And you might end up putting homeownership off for a longer time than you would've anticipated. If you want more information about buying a home in today's market and how to use today's market conditions to your advantage, definitely reach out to me. My contact information's in the description below. I will personally answer every call, every email, every text, and I would be more than happy to help you. And if you like videos just like this, please consider subscribing to my channel and don't forget to click the bell so you're alerted every single time I post a video.
