U.S. Mortgage Markets Heat Up As Interest Rates and Prices Rise


Potential homebuyers are rushing to mortgage offices to make sure they get a loan before prices and interest rates go even higher.

Mortgage rates jumped again to an average of 4.67%, up from last week’s 4.42%, Freddie Mac reported Thursday.

At the same time, the spring selling season is looking promising for sellers. Home prices rose 1.84% in February and 19.6% year-over-year – the largest annual gains on record – according to Black Knight’s Monthly Mortgage Monitor Report.

These numbers, along with an awkward supply and demand situation, are pushing some buyers who are in a position to do so to go ahead with their home purchase now. 

Jerry Stover, sales manager with Homeowners Financial, said this has been coming for some time but now those in the public are seeing it in action as some buyers are scrambling. 

“Some people obviously,” Stover said. “Are trying to get in before we see prices go up. However, we are seeing a good bit of people sitting on the sidelines thinking prices will go back down. Then you have yet another boat of people who are being priced out of being able to buy at all.”

Stover and others agree this is a condition that will continue and is not likely to change for several years. 

“It is the difference between the Haves and the Have nots. Especially for these first-time homebuyers. If you’re making $35K to $50K you’re qualifying between a 200K and 260K house and there just aren’t that many of those out there right now. It takes about $70K with a 36% debt to income ratio to get into a $300K house. If you are in the market and still have the means to buy right now, you need to jump on it and buy as quickly as possible,” Stover said.

Shannon Volkodav is an Atlanta area realtor. She agrees and says she is seeing people get on the stick in her own practice. 

“I have a client who solely bought right now in the expectation that interest rates and prices will continue to go up,” said Volkodav. “He started looking late last year with the plan of buying sometime in the summer. When the Feds went forward with bumping up interest rates, he bought much sooner than originally intended.”

Conversely, Volkodav said she is seeing other clients hold off and are growing gun-shy about buying. 

“Some buyers are a bit put off right now,” she said. “They are hearing horror stories out there about rising prices, rising interest rate, housing shortage, supply and demand, and a potential housing bubble bursting, and so on. I tell them we only need one house. And the right house is out there for every person.”

Many have pointed at the rise in the federal rate as a cause for the rise in loan rates and thus the run on getting a mortgage. But Matt Abraham of Homestar Financial says that is a small portion of a very large puzzle.

“The Federal Reserve sets monetary policy. Markets read that policy to determine, long-term, what is going to happen. The mortgage market is no different. It is a wholly functioning trading market that is true capitalism, meaning there is no one in charge. The mortgage-backed market is traded just like bonds are traded. The markets had already anticipated the Fed was going to raise rates because they telegraphed they were going to do so. The Fed doesn’t do shockers,” Abraham said.

Abraham said what did cause them to rise more rapidly was that the Federal Reserve admitted inflation was a problem. The market took that as the Federal Reserve was going to get more serious and be a lot more conservative.

All these factors have made buying a home difficult if not impossible for single first-time home buyers.

“I know a young person who is just starting out as a schoolteacher,” Stover said. “She is making a little over $47K annually, so she is making a little less that $4K a month. After taxes, she is bringing home around $2,700 a month. She just rented a one-bedroom apartment for $1,300 a month. That only leaves her $1,400 a month to pay power, water, to eat, and put gasoline in the car. Her parents are keeping her on insurance and a phone plan. To get a home she would need another income in the household. Many are saying we won’t see a significant drop in housing costs for six to ten years.”

As difficult as it is to buy a home, mortgage companies survive by giving loans and the downturn in buying and rising interest rates is going to start harming them, economically speaking, as well. Some companies are already experiencing layoffs. 

“If you look at the Mortgage Bankers Association weblink,” Abraham said. “You’ll see the layoffs are already starting. Typically, that all starts with the big call centers. They are laying off their refinance staff and you’ll likely see more layoffs if the volume continues to go down.”

Prices and rates are going up in most, if not all metro areas.

Across most of Texas local markets are seeing home prices 20% higher from a year ago.

In Atlanta, the Federal Reserve Bank has listed the largest city in the southeast as unaffordable. This is based on the Housing Ownership Affordability Monitor.

In January, the median price of a home in Atlanta was more than $350K while the median income was just over $73K. This means potential buyers would be committing more than 30% of their annual income just to housing.

Though there are difficulties in buying a home that does not mean the situation is hopeless. 

“There are many ways of landing the house you want,” Volkodav said. “You don’t always have to be the buyer that comes in with the highest bid. You just have to have an agent who understands the tools and options that are available.”

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