Some buyers lose interest
We previously noted here that six consecutive weeks of mortgage rate increases have yet to show any impact on home sales in the Coeur d’Alene Multiple Listing Service reports. As illustrated by the gains and appreciation of prices across the board we ended November very strong. Now, it seems with interest rates rapidly approaching the highest levels in more than two years at least some buyers are getting nervous.
Buying a home is the largest investment most people will ever make. If fact, equity in a home is what gives many the necessary means to retire. Reverse mortgages or sale of a home to downsize are common methods of extracting wealth to facilitate that retirement. As with any large investment a lot of planning should go into making the commitment, so a change in interest rates for some may not change the desire, but will impact the feasibility of moving forward.
We have considered the increases in the debt-to-income ratios of first-time buyers in particular when anticipating the impact these modest interest rate increases will have on our housing market. Several weeks ago the rate increase impact we illustrated would have had little impact on those first-time buyers. For example a $200,000 home at a fixed rate of 3.75 percent interest for 30 years would yield a payment of $740.98 before taxes and insurance. At 4.75 percent that payment increases by just under $50 a month. We opined that for most first-time buyers, the $50 probably would not put them out of the market.
Last week we received a report from an agent who believed he was losing a sale to a buyer of a type we had not considered in our projections of what is to come. It seems this member was working with a retired couple finally ready to build a custom home to retire in. Moving from another area, they have accumulated some good equity and wanted to use that for their down payment. They picked out a nice lot and selected a plan they felt would work for them.
Now, several seeks later with continuing increases in interest rates, they are having second thoughts. Soon their income will be dependent on retirement funds as they had planned to use the entire equity of their existing home to pay nearly half the cost of their new home so their payments would remain low. Given the price of their custom home the difference in payments now amounts to a couple hundred dollars a month.
These are not first-time buyers, so they are familiar with rates much higher than those currently being offered, so that is not the issue alone. Their real issue is that now they realize they are not likely to ever have another opportunity to get the same 3 percent mortgage they currently enjoy.
We will not know the impact of the interest rates for some time. We do know that for some, the anticipated hikes the Fed announced last week should provide incentive to act sooner rather than later to avoid those increases. Likely there are others like the folks just mentioned who will think about giving up their super low interest rate mortgages to take on a new one at a higher rate. Not only could that slow the “move up” market, but could exacerbate our challenge of low inventory.
Time will tell, but you know for sure, we will be watching closely and reporting our findings.
Trust an expert…call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
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Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.