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Higher interest rates affect the housing market in Bakersfield

Posted at 11:29 PM, Jul 27, 2022
and last updated 2022-07-28 12:23:01-04

The gap between demand and supply across industries, could have its own zip code. This includes the housing market.

“The typical, traditional American dream is to own your own home,” CSU Bakersfield Economic Chair, Aaron Hegde Ph.D said. “So it will always maintain a value.”

But when too many people want to act on that dream, it can become a nightmare for housing hopefuls, to buy something.

“We’ve just had so much demand in the last several months, especially that there are buyers finally able to buy, but they were losing out against multiple offers on listings,” Phil Jordan, lead realtor with Jordan Apartment Guys said.

As Jordan points out, the demand has been high, and the supply of homes has been low, which drives prices up.

Starting Thursday, interest rates are jumping up. This comes after the Board of Governors of the Federal Reserve System unanimously approved to increase the interest rate by 0.75 percent. This is the federal reserve’s attempt to slow demand across industries, experiencing record inflation.

It seems like supply may be starting to meet demand too. Just three months ago, there were 360 homes for sale in Bakersfield, according to Jordan. As of Wednesday, there are 853. That's more than double the inventory.

“It’s very common that in the spring and maybe summer, that’s when most sellers want to put their homes on the market, everything is starting to turn green, winter’s over, so you have some seasonal increase,” Jordan said. “The payment for a home is still 4, 5, 600 dollars more than it was four or five months ago, but there's more to choose from.

With more options and lessened demand thanks to a higher interest rate, you would think homes will become more affordable, but it could be more complicated than that.

Enter: The yield of treasury bonds, where expectations play a huge role in those high mortgage rates.

“Given that early January -July, we already had the data coming out that the inflation is so high, the markets, specifically the bond markets, expected the federal reserve to influence the interest rate, and they expected them to do it by three-quarters of a percentage, Hegde Had the federal reserve lowered, or not increased it by as much, then you would have seen a lot more volatility of movements.”

Add a higher interest rate to a higher mortgage, people could still get priced out of homes. Hegde recognizes that owning a home is still one of the best investments you can make, and there are some solutions out there besides just waiting for the market to get better.