Mortgage rates inched closer to 4 percent last week, but in a strange twist, that could be good news for homebuyers.
Higher rates tend to dampen the fervor of investors, who have been snapping up what few Bay Area homes there are for sale. That would give more typical homebuyers a better chance to get in the market.
"We don't want an investor-driven marketplace," said realtor John V. Pinto, who has offices in Silicon Valley. "We want an owner-occupied marketplace. With interest rates rising, for people that are first-time homebuyers there will be more opportunities."
But at a higher cost.
Freddie Mac announced Thursday that the rate for a traditional 30-year, fixed mortgage climbed to 3.98 percent -- its highest level since April 2012.
Last week, a 30-year, fixed-rate mortgage averaged 3.91 percent, according to Freddie Mac. A year ago, the same rate was 3.71 percent.
For middle school teacher Tony Arias and his wife, Michelle, a chemist with the U.S. Geological Survey, rising interest rates mean it will be more expensive to finance their new single-family home -- once they find it.
When they started looking in February, their interest rate on a $560,000, 30-year, fixed-rate loan would have been 3.75 percent. On Thursday, it was 4.125 percent, which for them translates to a monthly payment of $2,714.04, or an extra $120.59 per month.
The couple live in a two-bedroom, two-bath condominium in Campbell, where they hope to find their new home. But they've already offered above asking price on two houses, only to be outbid.
"It is frustrating," said Tony Arias, who teaches history, technology and life skills at C.T. English Middle School in Los Gatos. "But we're going to keep looking even with the higher interest rates because they're still not crushing."
In contrast, higher interest rates tend to dissuade investors who borrow to buy because the added expense can make a deal less profitable, whether they are looking to rent or turn over the house quickly.
Median sales prices for a single-family detached home climbed again in May, DataQuick reported Thursday, reaching $750,000 in Santa Clara County, a 22 percent gain over May 2012. There were similar gains in Contra Costa, Alameda and San Mateo counties.
Mortgage brokers and Realtors are quick to point out that 30-year, fixed mortgage rates below 4 percent are still a relatively inexpensive way to finance a home in the Bay Area.
"In the grand scheme of things, rates are still at historical lows," said Jenna Gray, a senior mortgage adviser at CMG Financial in San Ramon.
The predicted pullback of investors is likely to cool off two of the most discouraging aspects of the current market for typical buyers: multiple offers, and buyers getting outbid, even when they offer more than the asking price.
"We'll see a little bit of a pullback and that will be helpful," Gray said. "Buyers are discouraged with properties being sold way over asking. It'll be good for the market to have more buyers feeling confident their bids will be accepted."
Most people who wanted to refinance their mortgages likely already did when rates were lower, said Cheryl Mehe'ula, a loan officer with San Jose-based E.F. Foley.
And with rates for a 30-year, fixed mortgage now bumping up against the 4 percent level, Mehe'ula said, "We'll probably see a slowing down of the crazy multiple offers over the asking price. But instead of 30 multiple offers, you'll likely only have five."
Danville Realtor Kevin Kieffer of Keller Williams Realty is among the few homeowners still trying to refinance his primary residence.
But Kieffer isn't worried about rising interest rates.
He hopes to lock in a 3.75 percent interest rate on a 10-year-adjustable mortgage, which could save him as much as $300 per month on his mortgage.
"I'm not locked down yet," Kieffer said. "But I'm not nervous. All my rentals pay my mortgage right now."
He's more worried about the effect that rising mortgage rates will have on his clients, who keep getting outbid on homes they like.
"Everybody's biggest problem right now," Kieffer said, "is just finding a house among all of the other buyers in the queue looking for the right property."
Contact Dan Nakaso at 408-271-3648. Follow him at Twitter.com/dannakaso.