Higher mortgage rates are causing new headaches for home buyers from D-FW
In time for the spring property market, higher mortgage rates are putting more pressure on home buyers.
Home buyers in North Texas and across the country have already been challenged by the lowest inventory levels in decades and soaring prices.
The most recent – albeit small – increases in the cost of mortgage lending will make it more difficult, especially for first-time buyers, to have a roof over their heads. The hikes since the bottom of the interest rate market have increased payments on a $ 300,000 home loan by nearly $ 70 a month.
“If mortgage rates rise, it will have an impact on affordability and demand for homes,” said Frank Nothaft, chief economist at CoreLogic. “In the second half of this year, we will see a gradual decline in demand due to affordability.”
Average statewide mortgage costs have increased about a half percentage point so far this year, after falling to their lowest levels on record for most of 2020. Despite this year’s spike, home finance costs are at one of the best levels in history, lower than a year ago.
But the small hikes in mortgage rates mean buyers will have to dig deeper to buy a home. “If interest rates gradually get higher – and I think they will be later this year – this will destroy part of the advantage of low mortgage payments,” Nothaft said.
Combined with double-digit percentage house price increases in North Texas and across the country, home buyers are forced to spend more on both upfront costs and monthly payments.
“With a price increase of 10%, you as a home buyer need to have 10% more cash to pay the deposit,” said Nothaft. “What has gotten worse is the shipload of cash you must have upfront.”
Property prices in Dallas-Fort Worth have nearly doubled in the past decade. And in 2020 there were unexpectedly larger house price increases due to a shortage of houses on the market.
Necessarily believes that rising mortgage rates will help improve property appreciation.
“That’s one reason I think home price growth will slow down,” he said. “We’re still going to be posting numbers for home price growth – likely in the Dallas-Fort Worth area this year in the 7% and 8% ranges.”
Necessaft, however, expects the increase in D-FW home prices to slow to 3 to 4% year-on-year in the second half of 2021.
North Texas home builders struggling with a huge backlog of sold but not yet built homes could welcome a slight slowdown from higher mortgage rates. “A little moderation will allow builders to catch their breath,” said Ted Wilson, director of Dallas-based housing analyst Residential Strategies.
“It will still be a very dynamic market.”
Driven by cheap mortgages, housing starts in D-FW rose by a third in 2020 to their highest level in a decade.
Wilson said builders will see another surge in construction in 2021 as they have pre-sold so many homes. “We assume that with all this sales deficit, our starts will jump again in the first and second quarters,” he said. “I expect that we will reach the record level of almost 53,000 home starts.”
But home builders remember 2018 when home mortgage costs rose and home buyers withdrew from the market. “The recent bullish move in mortgage rates has caught everyone’s attention,” said Wilson.
Higher mortgage rates have already slowed the home refinancing business, which made up the largest proportion of mortgages in 2020.
The volume of home refinancing has been falling since January.
“When interest rates go up, the incentive to refinance goes down,” said Dougjas Duncan, chief economist at mortgage giant Fannie Mae. “We have downgraded our expected refinancing volume this year.
“It’s about $ 130 billion less than last month.”
Duncan said recent hikes in mortgage costs shouldn’t be enough to deter many homebuyers.
“If they move more in a short period of time, it could slow down housing construction,” he said. “Housing starts have slowed somewhat in the past two months.
“It could be that the rise in interest rates is just slowing starts a little.”
Demographics and economic recovery will further boost housing demand this year, he said.
“The housing market is still very strong at the beginning of the year,” said Duncan. “The question is, how will buyers react if these rates stabilize over the course of the year or perhaps move upwards.”