February 24, 2019

Mortgage rate trend boosts spring home buying, selling season outlook


How about the mortgage rate Valentine’s Day gift? Rates fell to their lowest level since early 2018 according to Freddie Mac’s Primary Mortgage Rate Survey for the week ending Feb. 14.

2019 NETAR President


The 30-year mortgage fixed rate averaged 4.37 percent for the week. This rate is slightly higher than last year – 4.35 percent – but the year-to-year comparison is not what has real estate professionals pumped.  They are focused on how rates have been trending and the affect as we enter the prime home buying and selling season.

Freddie Mac Chief Economists, Sam Khater, told reporters the combination of cooling inflation and slower global economic growth led mortgage rates to drift to their lowest level in a year. “While housing activity has clearly softened over the last nine months and the lingering effects of higher rates from last year are still being felt, lower mortgage rates and a strong job market should rekindle demand for the spring home buying season.”

The Tri-Cities market has seen a slight resales growth rate dip, but it has not been enough to pull monthly totals appreciably below last year’s number. Last year was the best year for resales since 2008. The local economy has seen a similar pattern. The growth rate has slowed, but it is still growing. This rate and very favorable gas prices have kept consumer confidence higher and home sales better that what you read about or hear on TV.

In another example of contrarian housing outlook news, Meyers Research Principal Mollie Carmichael said new home buyers and builders should look past headlines that are scaring consumers. It is advice that works for both the new home and existing home markets. Her outlook for was based on Meyers Research and the Metrostudy Consumer Sentiment Survey of new home shoppers. They pointed to a recovery that is not stopping. Consumer spending - usually a lagging indicator - remains strong.  Carmichael indicted the concerns about rising interest rates were likely overblown and noted new mortgage applications were increasing. The local pending home sales trend aligns with her prediction. Pending home sales in January were 40 percent higher than last year and had trended higher since July last year. She thinks rates will stay low through the spring selling season and that the overall housing market will remain strong for another year or two given current conditions.

“Given current conditions” is a tacit phrase which implies to be watchful for economic and market changes – even small ones.

One of the strongest local headwinds is affordability.  This is where we come full circle with the dance between home prices, mortgage rates, and wages.

Here is the mortgage rate baseline: one percent rate increase typically results in a twelve percent affordability decrease if wages are unchanged.

While the local resale market average is still in the affordable range, lack of inventory in the home price sweet spot can be a choke point. In January the median resales listing price in our region was just a little south of $190,000.  The rule of thumb for estimating how much home you can afford is to multiply your income by three for a low-side estimate and by four for a high-side estimate.

The most current Census report puts the average Tri-Cities family household income at $54,926. That means the low-side affordability is about $165,000 and about $220,000 on the high side.

The balancing factor is wages. If they increase proportionally with home prices, it is a stabilizing factor. If they do not, the effect of higher mortgage rates get an outsized influence.

For now, mortgage rates are trending lower adding some affordability fuel for the coming peak home buying and selling season.