Rising mortgage interest rates cause problems for potential buyers
TEXARKANA — Rapidly rising mortgage interest rates are making it difficult for first-time homebuyers to find bargains and for homeowners to expand in today’s market, according to a local expert.
At the start of 2022, the average 30-year fixed-rate mortgage in the United States was hovering around 3%, according to Freddie Mac. By May 19, the average rate had jumped more than 2 percentage points to 5.25%.
Jared Horton, owner/broker at Century 21 in Texarkana, Texas, said mortgage interest rates have risen more than one percent since April 2022 to around 5.5%. He expects it to be just over 6% by the end of the year.
“I feel like rates have gone up so fast it took everyone by surprise,” Horton said. “Everything is changing so fast, I can barely keep up.”
The Texas A&M Real Estate Research Center reported last month that in the first quarter of 2022, the income required to qualify for a 3% mortgage was $59,665 for the sale price of the first quartile in Texas of $229,000. The first quartile sale price generally reflects the price of a home affordable to first-time buyers.
The qualifying income requirement increased by more than $10,000 to $70,891 at a rate of 5.5%. The TRERC estimates that only 30% of renters in Texas — potential first-time buyers — could afford the state’s first-quartile sale price.
That’s down nearly 10 percentage points from the estimated 38.9% of Texas renters who could afford the state’s first quartile sale price at 3%.
“I mean it’s suddenly a whole different house, when you’re talking about knocking off 10% or better of what you can afford,” Horton said.
After an unprecedented year of land sales in 2021, commonly referred to as the “Texas Land Rush”, the Federal Reserve announced in February that it was raising the federal funds rate by a quarter point, which had previously hovered around 0%. .
Local realtor Tracy Spradlin, with Impact Realty Group, LLC, told the Gazette in a previous interview that she expects those rates to continue to rise. Federal authorities recently raised it to a range of 0.75% to 1%, the highest point since the pandemic hit two years ago.
Horton said the increase caused banks to raise their mortgage interest rates, which led to the spike.
“When all this started, people could sell and buy,” he said. “The problem right now is if you’re selling and you have that equity, if you can find anything else, you’re just moving sideways.
“To buy my same house now would be 100% more expensive than what I paid 13 years ago.”
Horton said he thinks the end result of the rate hike will be a stable market for a few years.
“If you buy a house today for $200,000, I think three years from now it will still be worth $200,000 because that house was worth $130,000 two years ago,” he said. “It’s just my guess.”
He said that in the near future he expects a decrease in the number of people moving only for better deals or to move into different neighborhoods.
“People aren’t going to move just because they want to move or because they’d like to be in a different neighborhood,” Horton said. “I think they’re going to move because they’re leaving or coming into town. I don’t think there will be a lot of buying up or down.”