Consider The Impact of Rising Mortgage Rates

The Great Interest Rate Debate…

Looking back, it started with a brisk Spring 2013 here in Williamsburg,Virginia, with market activity levels far surpassing our collective expectations.

What does history teach us...?

To have a better future, we can learn from the past

First-time home buyers were coming off the sidelines at a breakneck pace.  Home prices were seemingly irresistible and mortgage interest rates were incredibly low.  There simply weren’t enough great properties to go around.  Demand quickly outpaced supply, lowering the number of days a desirable home stayed on the market (e.g. favorably impacting absorption rates of our housing inventory).

Many of our more seasoned buyers were relocating from Northern Virginia ahead of their usual Fall buying time.  Their D.C. selling market was on fire, so they took full advantage of fortunate timing.  It was quite challenging as Realtors, appraisers and mortgage companies worked to keep pace with the upward momentum.

As the calendar progressed toward Memorial Day, unfortunately, the wild roller coaster ride began for us all.

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Rates ticked upward, then utterly spiked.  The 3.59% rate in early May jumped to 4.73% by the end of August (according to the Mortgage Bankers’ Association, or MBA).  This translated into a 15% increase in the monthly payment on a $200,000 mortgage.  With the area’s average sales price at $360,000, it was a significant pinch for the majority of those first time buyers.  It in turn impacted their sellers, who were finally buying that bigger home after waiting patiently for the market to rebound.  (Think ‘trickle up’ theory, in terms of economics.)

For many borrowers, the sudden increase in monthly mortgage payments was a deal breaker in terms of financing approval.  Contracts fell through, with countless transactions being subject to the sale of another person’s home.  Like dominoes falling, the ripple effect left buyers — and sellers — understandably frustrated.

In response, the terms of the sale (local lender approval, cash deals or not needing to sell a home first) began to trump purchase amounts that buyers offered.  Sellers and Realtors became concerned about the added risk of buyer financing in such a rate sensitive market.  Buyers and Realtors were nervous about just how high the rates could climb — and by when.

Not unlike gas prices, our historically low rates appear to have ‘reset’ to higher support levels.  It may likely be our new baseline for interest rates for the foreseeable future.  It’s important to keep things in perspective, especially with relation to where mortgage interest rates were just few years prior (see chart).  Looking back to the early 1980’s when I began working in commercial real estate development, we’ve come a long way in terms of affordable financing.

For my money, it still looks to be a good time to buy and invest in real estate for the long haul.  Remember: the money is always made at the buy, so learn how to buy wisely.  Want more insights? Simply contact me today!

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Tammy Thrift, Realtor

Serving Your Real Estate Needs, From Colonial Williamsburg To The Chesapeake Bay!

Actively licensed with Long & Foster in the Commonwealth of Virginia (USA)

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