We all see it in the news: Interest rates have risen to their highest level since 2009. East Bay home buyers are now looking at rates around 5.625% on a 30-year fixed mortgage.

Rates on a 30-year fixed were below 3% a couple of years ago, and have increased almost 2 percentage points in the last 60 days. These are significant changes. Everyone I talk to is asking how this is, and will, impact the market in Oakland, Berkeley, and beyond. Well, the short answer is this: It’s already changing the market.

Monthly payments for those using a mortgage just got a lot more expensive, and that is having an impact. For every 1% interest rate increase, buyers must reduce their purchase price by 12% in order to maintain the same monthly payment. This is causing some of them to drop out because they can no longer afford what they want.

Moreover, some “move-up” buyers hoping for a larger home or a better school district are deciding to stay put in their current home given the mortgage rate environment.

When you consider that half of all homeowners have an interest rate under 4%, you quickly understand why many potential sellers are staying put.

All-cash buyers are, of course, in a better position, but they’ve not been untouched by recent events. And some of these folks are not truly “all-cash” because the funds they use to buy frequently come from sources that need to be paid back. Many people have been borrowing from their 401ks, getting high-interest bridge loans from various sources, or getting money from parents who have taken out loans against their own equity-rich homes. This means these “cash” buyers will ultimately be subject to the same rate environment as those who get a mortgage in the first place.

One group not overly impacted by increased mortgage rates is downsizers. They have enough equity in their homes to take a hit on price and still pay cash for a smaller home. They have been major players in the East Bay real estate market and that will continue.

OK, so what’s the bottom line? Highly desirable homes are still selling for eye-popping prices, but more now is not. Downsizers are looking for level-in homes in excellent condition. There are not a lot of homes of this type in the East Bay, so the competition here is fierce. Homes that are in less-than-pristine condition, have funky floor plans, or have other quirks are now taking a bit longer to sell, and prices have leveled off.

It’s a tale of two markets at the moment, and we’re going to continue to see this unevenness and complexity through the remainder of the year. Give me a shout if you want to talk through it.