When Joseph Atkinson and his wife Cecilia began shopping for a home this year, they realized that anything they could afford would be smaller than the home they were renting. The culprit? High mortgage interest rates.

“It’s kind of upsetting to see what you’re getting for your money,” he said.

The Atkinsons are not alone. Across the Bay Area, home buyers are seeing their budgets shrink with each rate increase. They’re paying more to get less square feet than they might have a year earlier. Even just half a percentage point increase can raise monthly payments by hundreds of dollars.

“I made sure we got locked into our interest rate as soon as possible,” Joseph Atkinson said. Turns out, he was right to — rates spiked a week later.

Mortgage rates, at their highest level in 23 years, also have discouraged would-be sellers from trading up their homes, creating tight supply. The lack of inventory has pushed up prices for a second month in a row. The median home price in the nine-county Bay Area hit $1.3 million in September, a 6.6% increase from a year earlier, according to new data from the California Association of Realtors.

“We have an extreme lack of inventory here, and I don’t see that changing anytime soon,” said Jim Hamilton, president of the Silicon Valley Association of Realtors and an agent with Compass in Los Gatos.

That’s led to a prolonged cooldown in home sales, with Bay Area sales declining 23.7% from last September. Nationwide, sales of previously owned homes in 2023 are expected to hit their lowest level since 2011, when the U.S. was recovering from the 2007 housing Market crash.

Buyers today are swallowing the high interest rates, gambling that it’s worth having a foothold in the market now, with a chance to refinance later if rates come down.

“We haven’t really seen the buyers backing off because of that higher interest rate,” Hamilton said. “We’re still seeing multiple offers on homes.”

Properties aren’t sitting long on the market: The average Bay Area home spent 14 days on the market in September, compared to 26 days a year ago.

Some potential buyers last year opted to wait until interest rates came down, that is not likely to happen anytime soon.

“Some of my buyers have been waiting for rates to drop since last year, and regrettably rates have gone up since then,” said Jen Robles, a real estate agent in San Francisco.

One factor motivating buyers to jump into the market now is the perceived lack of competition: Many say that the relatively cooler market is preferable to the feeding frenzy they anticipate will follow a drop in increase rates.

That’s the way that Shardul Pathak sees it. A 37-year-old hardware engineer, Pathak bought a three-bedroom, two-bedroom home in Campbell this May for $1.5 million — a price he considers high, but less than it might have been with more buyers bidding on the property.

“I know that when rates go down, the market will become more competitive, and I would have needed to spend more money,” he said.

On the other side of the Bay, the Atkinsons were outbid twice before they landed on a two-bedroom home in San Leandro. Joseph Atkinson doesn’t want to imagine what it would have been like to search for a home during the pandemic, when 3% interest rates created unprecedented demand.

“It’s weird to say, but I feel lucky with the high interest rates,” he said.

Although the Atkinsons are looking on the bright side, there is a big benefit to those who bought when rates were lower.  A buyer putting down 20% on an $830,620 home — the median price across California — with a 3% rate in 2021 would have a monthly payment of $3,760, versus $5,600 with a 7.5% rate today, according to a CAR analysis.

“This increase in interest rates is a double whammy for buyers in the Bay, because not only are the rates significantly higher, but the price point and the resulting mortgages are significantly higher as well,” said David Stark, a spokesperson for the Bay East Association of Realtors.

As costs rise, buyers’ choices are dwindling.

“There’s just nothing,” said Melody Hultgren, founding partner of Nova Real Estate, which focuses on properties in San Francisco and the East Bay. “It’s not a total buyer’s market — it’s kind of the opposite.”

Sellers, too, complain that despite prices rebounding in recent months, they haven’t been able to fetch the high prices seen when interest rates were lower, said Ana Mernik Bohra, an agent with Christie’s International Real Estate Sereno in Santa Clara County.

“Both the buyers and sellers feel like they’re getting the short end of the stick,” she said.

We’re trying to tell more stories about what it’s like to navigate the housing market at this moment, and we’d like to hear from you. If you’d consider talking to a reporter for a future article, tell us a bit about your experience: