Mortgage Interest Rates Rise

Dennis Schroeder © News © 2004 Rising interest rates,which topped 6 percent this week, are affecting home sales in the Denver area and across the country. Many experts say the trend could mean it will take longer for people to sell their homes at the prices they want.

Rates help buyers get real

Some priced out of housing market; some rush to get in

By John Rebchook, Rocky Mountain News
March 26, 2005

Rising mortgage interest rates will knock many first-time home buyers in the Denver area out of the market and draw more people into the market who had been sitting on the fence.

The rising rates "definitely are affecting my market, which is the more affordable housing," said -Thomas J. Hannen, owner of Century 21 World Class Inc. in Aurora.

For example, he's in the process of selling a deed-restricted home in Green Valley Ranch for $150,000 to a woman who has a family of three and earns less than $50,000.

"If rates go up, I do not think she will be able to afford it," Hannen said.

A typical 30-year-fixed rate loan this week topped 6 percent, still low by historical standards but considerably higher than in the past couple of years, when rates hit a 45-year low of just over 5 percent.

Real estate and mortgage experts from Los Angeles to Chicago to Atlanta say the national housing market is likely to cool in the wake of the Federal Reserve's decision this week to increase the overnight bank lending rate for the seventh time since last June.

Because that helped push up other interest rates - including the yield on the 10-year Treasury note, which tends to influence mortgage rates - they say it could take longer for people to sell their homes at the prices they want.

So far, though, signs of a slowing of the housing juggernaut are mostly anecdotal.

New-home sales soared 9.4 percent in February, the government reported Thursday. And while sales of previously owned homes dipped 0.4 percent last month, the results still were better than analysts were forecasting.

At the same time, the median price for new homes - where half sell for more and half sell for less - rose 5 percent from a year earlier to a record $230,700 in February. For existing homes, the median price was $191,000 last month, an 11 percent increase from the same month a year ago.

Stories of bidding wars pushing sales prices far above their asking price continue to circulate in many markets, including New York City and the suburbs of Washington, D.C.

Even so, economists are forecasting that home sales and ever-escalating prices are likely to cool if mortgage rates continue to head higher this year. Rates on 30-year fixed-rate mortgages rose this week for the sixth week in a row and now average just above 6 percent nationwide. A year ago they averaged 5.4 percent.

"What's happening with rates is hurting the seller worse than it is the buyer, and home prices will flatten out if not go a little lower," said Bob Long, president of the Georgia Association of Mortgage Brokers.

In California, some industry observers are projecting a gradual slowdown in prices as borrowing costs rise and affordability becomes an even more acute issue.

"The picture for California has been great, but I think it has started changing," said Bruce Norris, president of The Norris Group, a real estate investment company. "There's certainly going to be upcoming weakness in California because we've just about gotten to the point where we've priced our typical buyer out of his ability to make the monthly payment."

High-end homes in parts of Chicago, those priced at $1 million and up, aren't selling as fast as they did in recent months, said Barbara Frankel-Abrams, vice president of sales at Jameson Realty Group.

"Maybe carrying a quarter-percent increase (in interest) is more formidable at that price," she said.

Sin City's housing market has been hot during the period of low interest rates over the past several years. But some mortgage agents in Las Vegas believe that rising rates could start to put the brakes on their housing boom, making it more difficult for sellers.

"People have decided they're not going to pay the astronomical prices for homes," said Las Vegas mortgage agent Connie Hooten.

Not everyone is predicting that ballooning home sale prices will burst with rising interest rates.

In Phoenix, the market has been so hot, it's going to take awhile for it to cool down, said Jay Butler, director of the Arizona Real Estate Center at Arizona State University.

In the Boston area, Maggie Tomkiewicz, president of the Massachusetts Association of Realtors, said that if anything, rising rates may lead to increased home sales in the short term, as buyers anticipating further rate hikes try to jump into the market while rates are still reasonable.

"Buyers say, 'Let's get out there in the market and get it done,' " she said.