In October, one of Dawn Berard’s clients closed on a local home purchase at a mortgage interest rate of 4.5 percent.
On Nov. 6, a different client’s mortgage rate was a little over 5 percent.
“That’s a pretty significant jump in 30 days, with very similarly situated clients,” said Berard, a residential broker and Realtor who owns Sold Buy the Sea Realty, a firm that has offices in Wilmington and the Pender County community of Hampstead.
By “similarly situated,” she meant their credit scores and price range.
“It was just kind of a rude awakening about what those rates are doing,” she said.
During the National Association of Realtors’ annual Realtors Conference & Expo this month in Boston, housing affordability, disruptive technology and rising interest rates were named among the issues experts deemed most likely to affect the real estate industry this year.
After a slower September for existing home sales, NAR chief economist Lawrence Yun said,
“A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases.”
That same month, when the Federal Reserve voted to raise interest rates and after a jobs report showed positive yet slower growth, Yun said, “The tightening labor market, along with some pick up in wages and prices, have forced the Federal Reserve to raise interest rates.
Another rate hike after this year’s election is expected and higher mortgage rates in turn will hold back home sales in high-priced markets. Lower-priced markets will be supported by job growth.”
The Federal Reserve is meeting again Dec. 18 and expected to approve another rate hike.
Edsel Charles of MarketGraphics, an expert who has visited Wilmington on at least two occasions to speak to the real estate community about market factors, has said rates historically haven’t affected the health of a market until they get to about 6 percent.
“I think that I would tend to agree with that, but I’d also say that one challenge – and I think we have a little bit of this now – is some of these younger millennials are thinking, ‘Well, wait a minute. I remember when rates were 4 or 3.75 percent’ and to get them to go to 5, 5 and a quarter, they’re thinking, ‘Well that’s a high interest rate,’ and we’re having to help them understand: Not really,” said Tim Milam, president of Coldwell Banker Sea Coast Advantage.
“My wife and I, our first house was 12 percent and I worked at a bank, so that was at a discount. That was in 1983 or ’84,” Milam said. “The rates now are still very attractive until they get to 6 percent.”
To Milam, of greater concern is the lack of options for first-time homebuyers, who are having a hard time finding homes for under $250,000 in the Cape Fear region’s market.
Berard said when she bought her first home more than 20 years ago at a young age, her rate was 11.5 percent.
Michael Lopez, owner and president of Alpha Mortgage Corp. based in Wilmington, remembers when rates were 16 percent during his 30- year career.
Lopez said he’s found that the rise in mortgage rates hasn’t affected the local market at all.
“People like to make news out of interest rates because interest rates appeal to the fear factor. Interest rates are like the tide; they rise and they fall, but people still need to buy a home. We’re still into the most affordable interest rates, except for a very short time in history, that have ever come along,” he said.
“Granted, it takes a little more income to qualify at 5 percent than it did at 4 percent,” Lopez added.
But the interest portion is not the biggest factor in qualifying for a home loan, and ratios have been expanded.
“We’re not finding that people are being shut out at all. A lot of it is how you’re explaining it to them,” Lopez said.
He said he’s noticed what’s happening in the market is that people are trying to predict where interest rates are going based upon what they know. But in reality, the mortgage- backed security rates set in the market are backed by all the data available in the world, Lopez said.
In his view, if rates were going to get substantially higher, they already would be.
“I fully expect them to stay about where they’re at, but you’re going to have times where they dip down, and those are good opportunities to both refinance and purchase,” Lopez said.
So far, as 2018 winds down, Realtors say the local market remains healthy, even after Hurricane Florence disrupted business for at least half a month in September and damaged thousands of homes.
“I literally had several closings yesterday, and the lender was saying if interest rates don’t stabilize, then things are going to slow down. But we also have the bittersweet aftermath of the hurricane where people are scrambling for places because there’s been houses that have been destroyed. I think that’s kind of counteracting [the rates],” Berard said.
While home sales numbers were definitely down in September because of the storm, Realtors expect the rest of the year to be fruitful.
“Not surprisingly, September is the worst month we’ve ever had from a profitability standpoint because people weren’t able to close homes,” said Ladd Gasparovic, operating principal of the Wilmington-based Keller Williams office. “But our community and our agents have bounced back strong. Many people moved forward and purchased homes with storm damage, some taking the damage in stride and others requiring it to be fixed prior to closing – required by most lenders anyway. There are some deals that fell apart where buyers got cold feet, but very few cases of that.”