Rising rates, prices panic would-be homeowners
Call them white-knuckle buyers -- shoppers worried that their chance to own an affordable home is rapidly fading. Real estate agents weigh in with their thoughts.
Celia Borrayo had hoped to stay in Goodyear, Ariz., where she, her husband and their three youngest children rent a home. Just a couple of weeks ago, that seemed like a realistic plan for these first-time homebuyers.
But then interest rates suddenly spiked. In just one week, from June 20 to 27, the average rate for a 30-year fixed-rate mortgage grew faster than at any time since 1987, from 3.93% to 4.46%. Before that, rates had stayed below 4% since November 2011.
Rates have fallen back a bit since, but so far only a smidgeon. This week, the average rate on a 30-year fixed rate has dropped slightly, to 4.385%, according to MSN Money (see bottom of page.)
Caught by surprise, homebuyers are reeling. All of the sudden, they're getting considerably less for their money. The response, for many, is panic, say two real estate agents in Arizona and Massachusetts. Applications to refinance "tumbled," according to Capital Economics, but the demand for financing from homebuyers is unchanged.
The Borrayos had been looking for a four-bedroom, two-bath home in Goodyear, 18 miles west of Phoenix. They were hoping for one with a big lot and an RV gate -- an enclosed space for extra parking. Now, that prospect has receded from their grasp.
Instead, they've begun shopping for a three-bedroom two-bath home, and in Buckeye, 15 miles west of Goodyear, longer commute from Phoenix and their landscaping jobs.
"With rates going up from 3.75% to 4.5%, the same buyer who would quality for $140,000 now will qualify for a mortgage in the $125,000 to $130,000 range," says their real-estate agent, Veronica Barragan, at Sueno Realty Group in Avondale, a western Phoenix suburb.
In fact, it is no longer certain that the Borrayo family will be able to buy a home at all. Like many home shoppers around the country, they've been hit with a double whammy: Not only have rates risen but home prices are going crazy.
Nationally, home prices rose 12.2% from May 2012 to May 2013, says a new report from CoreLogic. Almost every U.S. market now is participating in the recovery, with prices up in 97 of the top 100 largest metros.
In Arizona, where Celia Borrayo is shopping, prices rose nearly 17%. Last year, she might have found a home for $140,000 to $180,000 in Goodyear, her agent says. Now, that's unlikely, as anxious home shoppers compete with investors, all of them trying to outbid each other in their eagerness to get into the market.
The market has bottomed
"People now realize that they've seen the bottom," says Lynn Cohen, CEO of the Keller WIlliams Realty franchise in Newton, Mass. In upscale Newton, where the average home costs $600,000, prices have increased 8% to 10% just since summer began, she estimates.
Buyers are panicking, Cohen says. "People are trying very desperately to get into a property before they are priced out."
Usually, agents joke that Cape Cod might sink each summer when it seems that all of Boston has gone there to the beach. This summer, though, buying has been intensifying.
"There is that very intense feeling that they have to hurry, that they may be too late. Each deal is painful because they feel they're spending more than they can," says Cohen.
Anguished buyers who were prequalified to borrow one amount find that, by the time they locate a home, their purchasing power has shrunk. To keep up with the competition, they're forced to add cash to their offers. If they have it.Dropping out
The alternative is to drop out. In Arizona, the combination of high prices and rates is "taking most of the buyers out of the game," says Barragan. She is president of the National Association of Hispanic Real Estate Professionals' Arizona chapter.
In a phone interview, with Barragan translating from Spanish, Celia Borrayo wonders if she should quit trying to buy. "Now, maybe I should give up and not buy," she says.
In Boston, Cohen says, the overheated atmosphere is making real-estate professionals nervous. Her agents are advising some buyers to pull back and wait.
Two of her clients, a young pregnant Boston couple who are chafing to leave their rented studio apartment before their twins are born, are adjusting to the rising costs by moving their search searching into the suburbs, as the Borrayos are doing in Phoenix.
"They will find a house," Cohen says of the pregnant clients. "There are communities that are not as wild as ours. The farther west you go the better you can do."
She and her colleagues worry that current prices are unsustainable, and that they could collapse in a repeat of the 2006-2012 housing crash.
"We are shaking our heads at what people are willing to step up and pay for a property right now," she says. "We're only afraid that they're going to come to us in a year and tell us to sell it and we can't get their money back."
More at MSN Money
- Should you try home stalking?
- How an 'affordable' home could cost you later
- Is it too late to refi? 5 steps to an answer
VIDEO ON MSN MONEY
Talk about a distortion of reality - how did we ever get to this point? Incrementalism is a powerful tool.
When I got out of the Air Force in 1973 and returned home I bought my first house and the interest
rate was 4.75%. In 1976 when my wire became pregnant and we needed a bigger house the rate
was at 5.25% . People today don't have a clue about rates and what they can or cannot afford
and locking in low rates for the next 30 years////////////////////
ALERT: DEAD CAT BOUNCE IN PROGRESS:
"Dead Cat Bounce". Folks are still without "Good Jobs", if they have one at all, look around at the dead lawns and clearly vacant houses in your neighborhood. I have seen the signs in every town I have been in over the last 5 years. The reports of the new permanent under class of: the unemployed, people who lost jobs and the newly student loan enslaved, who may never get jobs, are visible all around us. The banks are only trying to sell off the inventory they have already foreclosed on and have been delaying default filings against those who stopped paying years ago. More home sales for the "PMI" insurance payouts, just like the last run up in prices, the banks all knew the loans were going to go bad, it was all about getting the PMI payouts on the defaults.
A-ha-ha-ha-ha, what a bunch of clowns? Low interest rates actually hurt housing because low interest rates create bubbles. What do you think is better, to buy at lower price with higher interest rates or at higher prices with lower interest?
When you buy with with low interest rates at higher price you have less equity in your house. and guess what happens when interest goes up, that's right, the home prices go down.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
MSN REAL ESTATE
If you worry about money after the streetlights come on, these actions may help you rest easier.