Mortgage rates plummet: What it means for San Diego real estate

Real estate with coastal views and close proximity to beaches is especially coveted in Southern California. Pictured is one of the area landmarks, Ellen Browning Scripps Memorial Pier in La Jolla. As one of the world's biggest research piers, Scripps Pier is used for boat launching and a variety of experiments conducted by Scripps Institution of Oceanography.
(Photo by John Gibbins / The San Diego Union-Tribune)

Lower loan rates may make the monthly price of a San Diego home a bit easier for some buyers


Worries about coronavirus (COVID-19) have hammered stocks and sent investors fleeing to the safety of U.S. government debt. And that might be good news if you’re looking for a mortgage.

Mortgage rates have plummeted in recent days, possibly making a home in the expensive San Diego market more affordable.

The rate for a 30-year, fixed-rate mortgage was 3.19 percent in the beginning of March 2020, said Mortgage News Daily. That’s at, or near, the lowest level since Freddie Mac started recording rates in 1972.

The lower rate makes the monthly cost of a median-priced home in San Diego County — $585,000 in January 2020 — about $367 less than it did a year ago when rates were closer to 4.56 percent. That is assuming 20 percent down and factors in monthly home insurance and taxes.

Fears over the coronavirus have already indirectly lowered interest rates, and the Federal Reserve cut a key benchmark rate this week. Both could continue to push rates lower. However, there is little consensus about what this could mean for the already hot housing market in San Diego.

Alan Gin, an economist at the University of San Diego, said lower interest rates make the monthly price of a home cheaper but that doesn’t always mean it is the best time to buy. He said there’s a good chance a slower economy could lower prices in the coming months.

“If the economy slows down, and I think it will, that could weaken the housing market,” he said, noting he did not think we were heading for a full recession.

Picking the best time to buy is never easy. For instance, even though mortgage rates are lower than a year ago, the San Diego County median also went up 7.9 percent in a year.

Gin said it’s likely the actual monthly cost of a San Diego home probably hasn’t changed even with shrinking mortgage rates.

However, some buyers might see this as an opportunity. Samantha O’Brien, a real estate agent with PorchLight in University Heights, said a lot of potential buyers are increasingly ready to pull the trigger.

“A lot of my clients, that I have worked with for a while, are really motivated right now,” she said. “These interest rates are absolutely crazy.”

O’Brien said she was working with a lot of potential buyers who were waiting for prices to go down, but that has not happened. Now, many are using the low mortgage interest rates as the reason to buy.

Coronavirus fears have been the main reason cited for U.S. bond yields dropping. Mortgage rates follow the yields on mortgage-backed securities. These bonds typically track the yield on the U.S. 10-year Treasury.

The Federal Reserve announced an emergency rate cut in the begining of March 2020, of half-percentage point, which led to an improved stock market days afterward. Also, according to some analysts, the stock market responded favorably to former Vice President Joe Biden doing well in the Tuesday, March 3 primary election over Sen. Bernie Sanders (I-Vermont) because he is seen as more favorable to business.

If investors are putting more money in the stock market, instead of bonds, it could mean interest rates will creep up again.

Another factor in the housing market could be a segment of people scared to buy anything because of the coronavirus. But Mark Goldman, a real estate analyst with C2 Financial Corp., said even the virus would not change the fundamentals of the market.

“We have a critical shortage of housing,” he said. “At the end of the day, the trend in San Diego is going to be more people with more money chasing fewer houses. That’s going to drive up the price.”

There were 4,186 homes for sale in January 2020, said the Greater San Diego Association of Realtors, down from 5,884 at the same time last year.

Matthew Shaver, a San Diego senior mortgage consultant with Finance of America, said the majority of his business the last two months — around 90 percent — has been in refinancing loans. He said the lack of homes for sale has meant very few purchase loans.

He said he funded $4.7 million in loans in January 2020, up from $1.8 million at the same time last year, and $3.8 million in February 2020, up from $2.1 million at the same time last year.

Shaver’s business jibes with national data released in early March 2020 by the Mortgage Bankers Association. The drop in interest rates caused a 26 percent weekly rise in refinance applications. It was up 224 percent from the year before.

Purchase applications were actually down by 3 percent weekly, but were up 10 percent annually.