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Banking & Finance

Rising Interest Rates Impact Housing

By Jenny Callison, posted Oct 7, 2022
The uptick in mortgage interest rates have taken some of the heat off the sellers’ market though area properties are still seeing strong demand. (Photo by Suzi Drake)
The frenzy that drove the area’s residential real estate market has relaxed somewhat in the past two months, thanks to climbing mortgage interest rates and a growing inventory of homes for sale.
 
“The Fed wants to slow down inflation. One of the largest contributors has been the housing market as it is the largest asset purchase most Americans make,” said Jason Wheeler, CEO and wealth adviser at Pathfinder Wealth Consulting. “The recent surge in housing prices contributed to the national inflation numbers significantly, and the Fed took direct aim at that market by raising rates.
 
“The cost of borrowing directly impacts housing, especially with higher prices,” Wheeler added. 
 
“[Federal Reserve] Chairman Powell’s June 22 comments included a shift in thought from supporting an economy with 14% unemployment during COVID to the current situation where he said: ‘I would say if you’re a homebuyer or a young person looking to buy a home, you need a bit of a reset.’”
 
Statistics for sales in August – the most recent month available – for New Hanover, Brunswick and Pender counties tell the tale. According to Cape Fear Realtors data, pending sales and closed sales are down slightly compared with those of August 2021, while days on the market have increased. And although sales prices have increased year-over-year, the percent of a home’s list price received by the sellers has declined slightly, indicating, perhaps, a lull in bidding wars. The supply of homes on the market is inching up.
 
These stats could spell good news for buyers after a prolonged sellers’ market.
 
“Even though [mortgage] rates have increased, it is still a great time to buy a home,” said Daniel Pedroni, vice president and mortgage loan officer at North State Bank. “The inventory of houses for sale is up, and home prices are stabilizing. The marketplace is rebalancing, with sellers more motivated to negotiate on the sales price and offer other concessions. This is all good news for buyers. If they buy now while the market is trending in their favor, they can hopefully refinance when interest rates decline.”
 
As one real estate broker put it, “You marry your home, but you only date your mortgage.”
 
The sudden and significant rise in rates was good in that it calmed the market somewhat, said Jennifer Reinholt, broker in charge at Just for Buyers Realty in Wilmington.
 
“It gave one of my buyers the opportunity to buy, but she did get priced out of the range she had been looking in,” Reinholt said. “Overnight, the rates changed and her [mortgage] broker hadn’t locked her into a rate, so our [price target] changed overnight from $300,000 to $250,000. Instead of the three-bedroom, two-bath house she had been looking for, now it was a two-bedroom, one-bath townhouse, with no upgrades.”
 
The buyer was still happy, Reinholt said, because after spending a year looking and being on the losing end of 12 offers, she found something she liked and could live with – and in. 
 
With rates higher and predicted to rise even more before the end of 2022, Reinholt is advising her clients to consider taking a breather.
 
“I’ve told people to wait until 2023,” she said. “Make sure they are preapproved. Don’t get overwhelmed. Most people don’t need to find something right now.”
 
Wheeler said the Fed will watch the markets, but clearly, its recent increases in the prime rate have rippled out to influence mortgage rates and the cost of developing new properties. The residential home sales trends reported by Cape Fear Realtors are being seen elsewhere.
 
“We’ve already seen prices being reduced nationally and rates have doubled, which coincides with increases in inventory and a slowdown in new permits,” Wheeler said. “The Fed doesn’t directly control mortgage rates, but the increases in the Fed funds rate and the strong commentary have market makers pushing rates to over 6% and doing exactly what the Fed wants: to cool off the housing market. The Fed’s comments Sept. 21 with the newest 75 basis points hike further stresses the need to raise rates, at least in the short run.”
 
Pathfinder still sees its clients moving, refinancing to fund improvements and making first-time home purchases, but from the industry, Wheeler and his Pathfinder colleagues hear that rates are expected to spike short-term and then decline over the next couple of years.
 
That scenario would justify the wait, Wheeler said, noting that the interest rate for a five-year adjustable-rate mortgage is currently higher than for a 30-year fixed-rate mortgage. “This doesn’t bode well for the real estate market in the short run,” he concluded.
 
Reinholt said in some ways the breather is good for buyers, who feel less pressure to make an immediate purchase decision.
 
“I am thankful people can maybe even see something for two or three times, or if they are out-of-town buyers, they can drive down and see [a home in person] and get the feel of a home,” she said.  
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