The market just got more expensive

Mortgage rates have moved sharply higher, and it's changing the conversation for both buyers and sellers.

There is a tendency in real estate to focus on home prices when talking about affordability. Buyers ask whether prices are coming down. Sellers want to know what their home is worth compared to six months ago. We watch inventory, price reductions and comparable sales.

But sometimes the biggest change in the market has very little to do with the price of the house.

Right now, it's the cost of the money used to buy it.

Mortgage rates have climbed from around 6% earlier this year to roughly 7.5% today. And while a point and a half may not sound earth-shattering, the effect on a buyer's purchasing power absolutely is.

Consider someone who has budgeted approximately $6,000 per month for principal and interest. At a 6% interest rate and 20% down, that payment could support a purchase price of roughly $1.25 million.

At 7.5%, the same monthly budget supports a purchase price of approximately $1.07 million.

That's nearly $180,000 of purchasing power that disappeared without the price of a single house changing.

I think that's one of the most important things to understand about our current market.

Buyers Haven't Disappeared. The Math Changed.

I've never loved the blanket statement that "buyers aren't buying."

People still want homes. Life continues to happen. People get married, have children, change jobs, inherit property, downsize, relocate and decide they'd rather own than rent.

But buyers also have limits.

When the monthly payment changes by hundreds—or sometimes thousands—of dollars, people adjust.

Some buyers lower their price range. Others become much more particular about the home they're willing to buy. Some decide they need a larger concession from the seller. And some simply sit on the sidelines and wait.

We're seeing that show up in the Orange County numbers.

Buyer demand has fallen 18% in just six weeks, while the number of homes available for sale has barely changed.

That's an important combination.

Sellers Have More Competition Than They Think

This is where I think sellers need to be careful.

It would be easy to look at relatively limited housing inventory and conclude that there still aren't enough homes for sale, so sellers remain firmly in control.

That's only half of the equation.

Inventory matters, but so does the number of buyers competing for that inventory.

Since the end of August, Orange County's active inventory has declined by only about 1%. During roughly the same period, buyer demand dropped 18%.

As a result, Expected Market Time has increased from 98 days to 118 days.

In other words, the number of homes for sale hasn't changed very much. The number of buyers willing and able to buy them has.

That's a very different market for a seller.

A home that's priced correctly, shows well and gives buyers a compelling reason to act can absolutely sell. But homes that miss the mark are more likely to sit—and the longer they sit, the more leverage tends to shift toward the buyer.

Higher Rates Can Actually Create Opportunity

There's another side to this that gets lost in all the negative interest-rate headlines.

If you're a buyer who can comfortably purchase at today's rates, a slower market isn't necessarily bad news.

You may face less competition.

You may have more time to evaluate a property.

A seller may be more receptive to repairs, credits, price negotiations or other terms than they would have been when multiple buyers were competing for the same house.

That doesn't automatically make today a great time to buy. And it certainly doesn't mean you should stretch your budget because someone tells you that you can refinance later.

It simply means price isn't the only thing that determines whether an opportunity is good.

I've seen buyers become so focused on waiting for the perfect interest rate that they overlook everything else happening in the market.

If rates eventually decline, affordability improves—but there's also a good chance more buyers come back with them. The negotiating environment we're seeing today could look very different.

There are tradeoffs in every market.

And That's Really the Point

Real estate rarely gives us perfect conditions.

When rates were extremely low, buyers complained about bidding wars, homes selling in days and having very little negotiating power.

Today, buyers have more choices and more negotiating room—but borrowing the money costs considerably more.

Sellers benefited tremendously from limited inventory over the past several years. Now they're facing buyers who are more payment-conscious, more selective and less willing to overlook an overpriced home.

Neither market is inherently "good" or "bad."

They're just different.

And that's why I think trying to time the housing market based on where interest rates—or home prices—might go next can be frustrating.

The better question is:

What does today's market allow you to do?

For some buyers, the answer may be nothing. The payment simply doesn't make sense, and waiting is the responsible decision.

For another buyer, less competition and greater negotiating leverage might create an opportunity that wasn't available a year ago.

For a seller, moving today may make perfect sense—but only if their expectations reflect the market they're actually selling into rather than the market they remember.

That's the conversation worth having.

Not "Is now a good time to buy?"

Not "Is now a good time to sell?"

But:

"Given what I'm trying to accomplish, what are my options right now?"

That's a much better place to start.

Frequently Asked Questions About Today's Huntington Beach Housing Market

While these numbers reflect Orange County as a whole, the same affordability pressures are shaping the conversations we're having with buyers and sellers here in Huntington Beach. Higher monthly payments are making buyers more selective, which means sellers need to pay closer attention to pricing, condition and competition.

Are higher mortgage rates causing Huntington Beach home prices to fall?

Not necessarily. Mortgage rates are only one factor affecting home prices. Inventory, buyer demand, location, property condition and the amount of competition for a particular home all matter. What higher rates have clearly done is reduce purchasing power and make many buyers more selective.

Is it a bad time to buy a home in Huntington Beach?

I don't think there's a universal answer to that question. Higher rates make borrowing more expensive, but a slower market may also mean less competition and greater negotiating leverage. Whether buying makes sense depends much more on your finances, timeline and goals than on trying to identify the perfect market.

Should I wait for mortgage rates to come down before buying?

Maybe—but I wouldn't assume lower rates automatically create a better buying opportunity. If rates decline, purchasing power could improve, but more buyers may also enter the market and increase competition. I'd rather evaluate what you can comfortably afford today and whether the right opportunity exists than make a decision based entirely on predicting future rates.

Do Huntington Beach sellers have to negotiate more in today's market?

It depends on the property. A well-priced home in a desirable location can still generate strong interest. But when buyer demand slows, sellers generally need to pay closer attention to competing listings, condition, pricing and the terms buyers are requesting. The individual property matters more than the headline about the overall market.

*Statistics provided by Reports On Housing

About the Author
Mitch Galyean is a California real estate broker, Huntington Beach native and member of The Galyean Team. He has 17 years of experience helping buyers and sellers throughout Huntington Beach and the surrounding Orange County communities. Learn more about Mitch →