Local firms monitoring rising mortgage rates
August 19, 2013By J. Elias O'Neal
Lower interest rates and improving home prices have made financing a residence in the greater Wilmington area attractive to local and outside buyers.
But some local mortgage bankers and brokers warn that the impact of rising interest rates could affect the buying power of potential homebuyers.
“It really is the fear of the unknown,” said Melanie Welsh, president of Wilmington-based Envision Mortgage. “There are many clients that thought interest rates would go lower; now they look back and they regret missing their opportunity to finance.”
Beginning in May, and toward the end of June, the average interest rate for a 30-year fixed-rate mortgage surged from 3.59 percent to 4.68 percent – the highest rate increase since 2011, according to the Mortgage Bankers Association.
That could spell bad news for homebuyers — particularly first time homebuyers — who didn’t take advantage of ultra-low interest rates in the spring, and for existing homeowners looking to refinance their mortgages. Higher rates also mean that potential buyers are going to be coming out of pocket with higher monthly payments and closing costs for a home in our area.
“The closing costs are going to increase,” said Michael Lopez, president and owner of Wilmington-based Alpha Mortgage Corporation, a firm that specializes in mortgage banking. “This is a natural process because more homes are being sold, building costs are increasing and land values are rebounding.”
According to a recent study by New York-based Bankrate Inc., a financial firm that publishes home financing data, loan-origination and other fees rose 6 percent over the past year to a national average of $2,402 on a $200,000 single-family mortgage loan to a customer with stellar credit and a 20 percent down payment.
North Carolina had the sixth-highest closing costs in the nation, averaging $2,558 on a $200,000 single-family mortgage loan, according to the report.
The higher interest rates are also slowing refinancing of existing mortgages, Welsh said.
“Many clients with existing mortgages were waiting for the rates to go lower before moving forward with refinancing their homes,” she said. “Now they have missed their opportunity to refinance and lock in lower monthly payments because the rates have increased.”
But the increase in mortgage rates and closing costs appears to have had very little impact on the area’s home sales.
Residential sales continue to post year-over-year gains across the greater Wilmington region.
Figures recently released by the Wilmington Regional Association of Realtors (WRAR) showed a 4 percent hike in the number of homes sold in the greater Wilmington area in June compared to June 2012.
In all, 577 homes were sold last month throughout New Hanover, northern Brunswick and Pender counties – up from 556 homes sold in June 2012. The average price of a home sold in June also increased 7 percent to $224,515, compared to $209,486 in June 2012.
“The good news is that we’re not talking about huge increases that would totally derail the recovery in our area,” Lopez said. “We have a very strong local housing economy.”
But while the pace of home sales in the region and nationally is rebounding, area mortgage lenders and bankers say any sudden changes to federally-backed mortgage securities, or a drastic rise in the interest rate, could quickly derail the housing recovery and hit prospective homebuyers even harder in their wallets.
“I don’t think we’re going to see a 30-year fixed-rate go much lower than 4.5 percent,” Welsh said. “There have been some economic forecasts that have the interest rate at 5.5 percent by early 2014. That’s still low, but not as low as we have seen earlier this year.”
Lopez agreed, adding that he does not foresee skyrocketing interest rates – noting the federal government’s role in helping quell the housing crisis in 2008.
“The feds are not going to derail their own recovery, so I don’t see them increasing rates to 6 or 7 percent,” he said.
Both Welsh and Lopez agree that despite the growing mortgage interest rates and closing costs, the area’s housing recovery should not be heavily impacted.
“I’m a big believer in the free market, and I feel it’s going to win out here,” Lopez said. “This is still an outstanding opportunity to buy because the rates are still very low.”