San Diego homes are pricey: Compared with local rents and incomes, they are more expensive than at any time outside last decade’s housing bubble.
But monthly home payments are a different story. Thanks to uncommonly low interest rates, mortgage payments have remained pretty reasonable even in the face of increasing purchase prices.
The chart below shows a measure of how expensive the typical San Diego monthly house payment has been relative to local rents and incomes, which make for a good comparison because they represent the most important drivers of home price changes. Despite unusually high home purchase prices, San Diego monthly payments are actually less expensive versus incomes and rents than they’ve typically been over the past 40 years. In fact, the only time payments have been this low outside the post-housing crash period was during the late 1990s, when home valuations were nearly as cheap as they’ve ever been.
It’s reasonable to wonder whether low rates, should they persist, will help keep home valuations at these lofty levels. Maybe — but in the past, the relationship between rates and prices has actually been pretty spotty.
Mortgage Rates Aren’t a Big Driver of Home Valuations
Lower rates lead to lower monthly payments, allowing buyers with a given monthly budget to afford a more expensive home. Higher rates have the opposite effect. So it might seem intuitive to believe that rates should have a really big impact on home purchase prices. In fact, this has not historically been the case.