By now you all know the Fed has increased the interest rates it charges banks to borrow. That increase has already impacted mortgage loans, but there is another impact that is sure to perplex would-be homebuyers. As rates near 4.5 percent, monthly payments will increase slightly over the payments at 4.25 percent. The difference on a 30-year loan of $250,000 with a 3 percent down payment will be about $36 — or about six lattes a month. Although some young people are perceiving the rate as unusually high — which it is if they started looking for homes a year ago — and finding it compelling to accelerate their search, they may find even fewer homes to choose from.
Many homeowners who remember double-digit home loans still think rates are ridiculously low. Others who may have purchased with a 6 percent interest mortgage as recently as 2007 when prices were at their last peak have largely refinanced to take advantage of the lower rates seen in the last couple of years. It is these groups of people who are likely to contribute to the current dearth of housing inventory.
Some of our seasoned citizens who purchased homes when their kids were young and may have paid as high as 18 percent for a mortgage in the 1980s have refinanced. As their lives progressed and needs for their children’s college tuition or for unanticipated health expenses occurred some may have refinanced several times to generate cash flow for those immediate needs. Although their homes may be larger than they need, they too may have grown accustomed to abnormally low rates as the Fed strived to stimulate the economy. So conditioned they may be reluctant to exchange their low-balance, low-interest mortgage for a new right-sized home with a higher-rate mortgage with a higher balance. This reluctance then, exacerbates the lack of housing as homes that would normally cycle back into the market remain off the market leaving only those properties being vacated due to life-changing circumstances.
Even as millennials have delayed their buying due to exorbitant student-loan payments or career challenges brought on by the recession, older generations have held on to their homes longer than was previously typical. When the recession made it extremely challenging to sell a home and with the escalating costs of assisted-living facilities many took advantage of the low interest rates to fund complete home makeovers to their existing homes. These changes allow them to age in place and avoid expensive elder care, perhaps by adding a second kitchen in their unused space to accommodate a live-in care provider in their later years negating the need to move or to sell.
The good news is as employment continues to rise and demand for qualified and dependable workers increased, wages are rising. We can only hope these increases will enable people to invest a bit more in their homes so they can reach a bit higher where inventory is less scarce. Meanwhile our builders are listening and doubling down on their efforts to provide affordable housing. Stay tuned.
Trust an expert … call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.