September 30, 2018

Higher mortgage rates expected to throttle some of housing market's pace


It was inevitable that mortgage interest rates would sooner-or-later begin moving higher.

At the end of last week rates moved up for the fourth week in a row and there were no signs of abating.  The Freddie Mac 30-year fixed rate stood at 4.65 percent with an average of 0.5 points. But there is hope. Freddie Mac, Fannie May and the National Association of Home Builders expect to see some stability regarding rate movement through 2019. If those forecasts for 5 percent or a little better hold they will be just below where they were in 2008 – the year before the Great Recession hit the local economy. And by historical norms they would still be below average.

Aaron Taylor
2018 NETAR President

There's some good and bad to this mortgage rate trend.

Higher rates mean absolutely nothing to mortgages already locked into a 30-year-fixed mortgage. That includes many – if not most - local mortgages. And there in is part of the downside.

Lawrence Yun, the National Association of Realtors'® chief economists, says that some homeowners will hesitate from moving away from their locked super low rate as the current rates approach the 5 percent mark. A recent NAR's survey says about 14 percent of homeowners say they're unwilling to move because of this.

Although the percentage may be different the situation is the same here in Northeast Tennessee.  According to the most current Census data about half of all the homes with a mortgage in the three-county Johnson City Metropolitan Area (MSA) and 40 percent of those in the four-county Kingsport-Bristol MSA have been in their homes eight years or less and are financed at a low rate. The average tenure before owners trade up or down is 10 years. And more than 30,000 Tri-Cities homeowners took advantage of the record low rates in past couple years to refinance at record low rates. That refi market has just about dried up now.

 The good news is rising interest rates are the result of an improving economy. Housing, retail sales and sales tax collections led the way until late last year when the local labor market caught up.

Higher rates are often welcome news for sellers. It tends to nudge buyers off the sidelines.

The not-to-good news is higher rates and home prices take a bite out of affordability. But don't get too caught up in what you'll see in the news. Most reports will be the affordability status on a state or national level. What buyers must focus on is local affordability. That's an area where the Northeast Tennessee and Tri-Cities regional markets are not suffering as much as some markets.  

Higher rates do mean the cost of financing a home will increase. A Wall Street Journal article summed up what buyers face this way.  "If for instance, 30-year mortgage interest rates rise by 1 percentage point a year from now and home prices rise by another 5%, a monthly mortgage payment could jump by around 17%." 

That means those looking to get into the market should begin tuning up their credit scores because buyers with the highest credit scores will be able to snag the lowest rates.

Since rates have been so low for so long credit rate tune-ups, have not been in the news. That's about to change. So, in the coming week's we'll use this space to go over time-tested ways for potential buyers to better their credit-score positions.