Rising Interest Rates
spurring race in tight market

A rise in mortgage interest rates shows little sign of slowing demand for homes in Santa Barbara County, where South Coast prices tickled the million-dollar mark and median home prices across the county last month posted double-digit gains from a year ago.

On the South Coast, the median was $985,000 in April, up 20 percent from the $819,000 of a year ago. The Santa Ynez Valley posted a 23 percent gain to hit $742,000 last month compared to $602,250 last April. In the Lompoc Valley, the median in April was $335,000, up 25percent from $267,675, while Santa Maria reported $340,000, a 24 percent rise from last year's $275,000.

The higher rates appear to be fueling even greater demand, as potential buyers race to get into the market before prices and mortgages float beyond reach, said several real estate professionals.

"Everybody wants to buy now, given everything that's going on," said Carol Kruckenberg, president of the Santa Barbara Association of Realtors and an agent with Village Properties.

"Prices continue to go higher and now economists are starting to say that the Fed (Federal Reserve) will probably raise the interest rate at its next meeting this summer."

Although the Federal Reserve's actions affect short-term interest rates and not fixed-rate mortgages, a move by the Fed to raise its rate signals confidence in the economy. That endorsement sends a thumbs-up for investors to pour money into the stock market, shifting funds out of bonds. To hold onto investors when this happens, interest rates on bonds usually rise. Fixed mortgage rates move in the same direction as the interest rate on the 10-year bond.

Fixed mortgage rates edged up less than a half percentage point in April to average 5.89 percent, according to the Mortgage Bankers Association. A year ago in April they were at 5.67 percent

Mortgage broker Harlan Green of Community Lending in Santa Barbara said his business has not slowed with the tick up in rates.

"People are not panicked about the rates going up," Mr. Green said. "As long as they see that home values keep rising, they will continue to buy."

Santa Barbara County followed the statewide trend of rising prices fueled by the fear of escalating interest rates.

Home sales surged in Southern California last month, with prices rising at their fastest pace in more than 16 years as buyers rushed to get in the market while mortgage rates remained relatively low, according to Data Quick real estate research firm.

La Jolla-based Data Quick said the April sales total was the highest for any April going back to 1988. The median price of a home in Southern California was $386,000 last month, a new record. That was an increase of nearly 26 percent from the $307,000 for April 2003, making the increase the strongest in Data Quick's statistics.

The median marks the point where half the homes on the market sell for more and half sell for less. The median reflects the composition of homes sold in the market, and not appreciation rates for an individual property.

High demand and low supply keep pushing the prices higher, said Jim Witmer, an agent with Village Properties.

"Supply is so scarce right now that I think people are welcoming a slight rise in interest rates in the hope that it will decrease the demand," he said.

But he and other agents have yet to see buyers scared off due to the higher rates. Nick Svensson, at Sotheby's International, said that multiple offers on homes remain the norm. As an example, he cited a recent sale on Coast Village Road.

A two-bedroom, one-bath cottage less than 1,000 square feet sold after just one week on the market for the full asking price of $1 million, he said.

"There were two backup offers," Mr. Svensson explained. "Another party offered to pay the buyer $50,000 to take over their position in escrow. The buyer refused."