Only a few weeks ago, Kelly Egan and her fiancé Mike Rogers were looking at for-sale houses about once a week in Dubuque, Iowa. That was as much time as they believed they could spend house hunting given their commitments at school, work and church.
Now, the two are looking at as many houses as they can no matter when they have to squeeze in the appointments. They’ve even put off planning their wedding for now to focus instead on buying a home.
The reason for their all-out push comes down to simple economics, specifically rising interest rates. When the couple visited their bank two weeks ago, the interest rate for the loan they want to obtain was 6 percent. A few days ago, it was up to 6.25 percent, Egan said.
“Our banker is super helpful and doesn’t persuade us, but the interest rate sure did,” she said.
Home-buying activity historically has picked up its pace just before interest rates increased as potential home buyers scrambled to get into the market. That trend already is showing signs of holding true this year. Mortgage interest rates have crept up during the last few weeks, and the Federal Reserve this week hinted that it might raise its key funds rate, which could drive mortgage interest rates even higher.
Real estate brokers said they weren’t sure whether the prospect of higher rates had pushed many new buyers into the market, but the possibility of even higher rates has turned casual shoppers into serious buyers.
“Any time there’s an interest-rate movement up, it’s going to push any buyers in the gray area or those sitting on the fence much closer to making a home purchase,” said Harley Rouda Jr, CEO and managing partner of Real Living in Columbus, Ohio. “People in the market now are probably going to make a little bit faster decision.”
Do you think the fear of rising interest rates is having an impact on the market?
Purchase mortgage applications increased 4.4 percent on a week-over-week basis, despite higher interest rates, according to the latest Mortgage Bankers Association survey. The average contract interest rate for 30-year fixed-rate mortgages increased to 6.1 percent this week from 6.01 percent the prior week.
Tossing more motivated buyers into already hot housing markets with low inventory adds an extra layer of complexity.
“There’s only one thing that will happen and that’s that prices will go up,” said Robert Kleinhenz, deputy chief economist for the California Association of Realtors.
The combination of low inventory and buyers fearful of rate hikes absolutely keeps prices high and houses sold for more than the list price, said Christopher Cagan, director of research and analytics at First American Real Estate Solutions in Anaheim, Calif. He believes buyers already have been jumping into the market during the past few months to take advantage of the still-low rates.
Soon, even more of them will realize “these are the last great days of low interest rates,” he said.
“There’s going to be a burst of now-or-never buying,” Cagan said.
Andrew Show, owner of Buyer’s Resource Realty Services in Columbus, Ohio, said he’s noticed a dramatic increase in buyers’ interest during the past 10 days. Some of that could be attributed to the normal spring uptick in home buying, but much of it may be due to interest rate fears.
People have almost come to take low mortgage interest rates for granted, Show said. That means any perception that rates might not stay that low, even if they’d still be low from a historical perspective, can motivate people to buy, said Show, who is also president of the National Association of Exclusive Buyers Agents.
Bill Gearhart, principal broker of Coldwell Banker Townside Realtors, said buyers in the Roanoke and Blacksburg areas of Virginia definitely are talking about interest rates and the possibility of increases.
“Everybody we’re working with is talking about it,” said Gearhart. “It seems that buyers are not taking as long to make a decision. They want to get locked in.”
The market is still the strongest Gearhart has seen, and he doesn’t anticipate much slowing unless interest rates rise higher than 7 percent. Increases up to that level, he said, would likely motivate potential buyers even more.
Debbie Switts, a loan officer with 1st Georgia Mortgage Funding in Roswell, Ga., said she believes buyers would be motivated by the prospect of higher rates, but she hasn’t experienced that as a lender. It has affected rental properties she owns, however.
Three of her 10 tenants called within a recent two-day period to give her their move-out notice. All of them were planning to jump into the housing market.
“They know the rates are going to go up, and they want to buy property,” Switts said.
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