What Rising Interest Rates Could Mean for West Los Angeles

What Rising Interest Rates Could Mean for West Los Angeles
Interest rates went up again a half point, the largest increase in 20 years. Consumers are already hurting with rising gas and food prices so what does it mean for homeowners that might want to sell and buyers still trying to break into the housing market? We asked Heyler’s Sean McMillan to find out.
a man and woman smiling
Heyler Realty’s Sean McMillan and Jae Wu

What do rising interest rates mean for home buyers?

Sean: Interest rates for mortgages are significant when it comes to determining affordability for buyers and the sales prices for sellers.Firstly, the loan amounts for buyers are very different based on rate. If one were to qualify for a $1,000,000 mortgage at 2.5% and have a payment at $3,950, they would need a household monthly income of approximately $16,000. Now based on the increase in rates, that same buyer is subject to 5.5% for a payment of $5,500 and would need a monthly household income of approximately $22,000! A staggering 28% more household income to qualify for the same loan amount.
Clearly the buyer pool will shrink as less and less people will be able to afford the median priced homes across the board. This will impact the demand and will likely increase housing stock AND most likely start a downward trend in sales prices.

What does it mean for homeowners in West Los Angeles that are looking to sell?

Sean: Fortunately, where we live and thrive is in the Westside of Los Angeles, which is really in the geographic confluence of major employment opportunities given proximity to UCLA, Century City, Beverly Hills, Disney Fox, Sony and Google. Those mega employers offer stability and staying power over the long term. I speculate while we most likely will start some form of “softening” in terms of both price and demand, we will STILL have a dependable market for sales. It’s just so central to so many important and significant resources. While not likely that we will continue the upward speculative trend, we will likely level off and have a more stable and slow market here.

How about for buyers?

Sean: For buyers the news is different, and most likely they will like it…well a bit of it. Realistically with higher rates there will be less and less qualified buyers, and home prices will most likely soften AND the multiple offer marketplace should also weaken and help make house prices lower to attract buyer attention. This market could be shifting to more of a buyers market.

OK, soothsayer, what’s next for the Los Angeles housing market?

Inasmuch as how the future goes…my crystal ball cracked years ago, but that isn’t a bad thing, because the truth is nobody knows what happens next. As far as an educated guess, I think real estate is the BEST investment a person can make OVER TIME. If one sticks to a long term plan, they will most likely be ok as real property is tangible as both a domicile as well as an investment vehicle. With our tenure in the industry, well over 60 years combined experience, we have seen many many market changes. These changes offer great opportunities for those bold enough to take risks and see the possibilities of emerging marketplaces – SB 9, SB 10, Upzoning, ADUs – these are all really impactful changes that ARE already taking place..frankly I like an increased housing stock that is more affordable, I think it’ll improve the quality of life in LA with less traffic and greater diversification. 

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