As mentioned in part 1, Housing Inventory is influenced by many factors and one factor that has a large influence on real estate (whether it’s a good market or a bad one) is Interest Rates (the price you pay to borrow money over time).

When Interest rates are high, this usually slows down anything that’s is reliant on lending whether commercial, residential or consumer related.  When interest rates drop, businesses and consumers start spending again as their ability to leverage improves and their costs drops.

Interest Rates in the last 20 months – Once Very Low, Then Very High and Hopefully Going Lower…

In June/July of 2022, interest rates started climbing from all-time lows and continued their way up from 2.75% in rate in the residential markets to a whopping 8% as the Federal Reserve was trying to control inflation.

In August/Sept of 2023, the Federal Reserve started using language that they might slow down or stop increasing rates, as inflation showed signs that it was getting inflation under control and that they might ease rates in Q1 of 2024, great news for us loan originators, as we just had the worst year ever in 30 years of lending and why over 200,000 loan officers and support staff exited the industry similar to what was seen in 2008/2009 with the recession of the stock market and housing collapse.

At that time (still in Sept of 2023), the Federal Reserve shared their intention and plan on how they were going to lower rates in 2024, 2025 and 2026 getting us back to rates in the mid 4’s to mid 5’s.  In q1 of 2024 after seeing Decembers numbers for inflation, those plans were squashed as inflation started to rear its ugly head again even though the stock market was on fire which would normally fuel the real estate market but rates went from the mid 6’s to the low 7’s in less than 1 month and stayed that way until March when rates finally started to drop as the Federal Reserve stated in an FOMC Meeting that “the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent” which is in line with the same update in September of 2023 which was great news.

We hope the Fed’s continue to lower rates to fuel the economy and help the real estate market which should bring more buyers and sellers to the market.

What Do Interest Rates Really Do?

Interest rates directly affect the cost of borrowing for consumers and businesses alike. In the context of real estate, mortgage interest rates significantly influence the affordability of homes. Lower interest rates make mortgages more accessible and reduce monthly payments, stimulating housing demand. Conversely, higher interest rates increase borrowing costs, potentially dampening demand and slowing down the pace of home purchases. In the Bay Area’s high-priced real estate market, even slight changes in interest rates can have a substantial impact on affordability, housing activity and can increase or impede consumer confidence.

Interest Rates Affect Consumer Confidence?

Consumer confidence, a crucial driver of economic activity, is closely tied to interest rates. When rates are low, consumers are more likely to feel confident about making major purchases, such as homes and durable goods. This increased spending contributes to economic growth. Conversely, rising interest rates may cause consumers to postpone discretionary spending and investments, leading to a decline in consumer confidence and overall economic activity.

The Federal Reserve plays a central role in influencing interest rates through monetary policy decisions. By adjusting the federal funds rate, the Fed aims to achieve its dual mandate of price stability and maximum employment. Changes in the federal funds rate ripple through the financial system, impacting borrowing costs and, consequently, economic activity and real estate markets.


In summary, interest rates in the Bay Area have far-reaching implications, affecting housing affordability, economic growth, and consumer sentiment. Monitoring interest rate trends is essential for stakeholders in the real estate industry, policymakers, and consumers alike, as they navigate the complexities of the market and plan for the future.

Any questions, please contact me.

Best Regards,

Rob McCarthy
Senior Mortgage Advisor
650-465-8957 c  408-377-4123 o
CA DRE #01165697  NMLS #121019
101 Loan – 14435 C Big Basin Way, Saratoga, CA 95070


  1. Residential Financing for Purchases and Refinances on 1 to 4 unit properties.
  2. Reverse Mortgage Financing to include Conforming, Jumbo, HELOC Jumbo’s.
  3. Commercial & SBA Financing to include Multifamily, Office, Retail and Light Industrial.
  4. Access to over 60 banks with over 300 “Five Star” Reviews on Yelp, Google and Linkedin.
  5. Over 30 years of lending experience with over $2b in closed loan volume.

Note: Interest rates and loan programs quoted are subject to change without notice or until locked and approved by lender.

The post Interesting Times in Real Estate…Part 2 (Interest Rates) appeared first on 101 Loan.