The rise in interest rates could cost new home buyers hundreds in higher monthly mortgage payments, but in Delaware, demand for home loans and refinancing remains strong.
As of March 31, the national average for a 30-year fixed-rate mortgage is 4.67%, according to the Federal Home Loan Mortgage Corporation, known as Freddie Mac.
That’s up from about 3.05% in March 2021, said John Chartrand, Del-One Federal Credit Union chief lending officer.
An increase of 1 percentage point in the interest rate on a 30-year, fixed-rate mortgage for a $300,000 home will mean an additional $170 to $175 on the monthly mortgage payment, excluding taxes and insurance, depending on the accrual method used by the lender, Chartrand said.
Home sales in Delaware are mixed, lagging in New Castle and Sussex counties while trending higher in Kent, but the reasons may have more to do with the inventory of homes available for sale. Inventories are down in New Castle and Sussex counties, but higher in Kent.
One trend that’s the same for all three counties is home prices compared to a year ago, up 11.76% in New Castle, 14.8% in Kent and a whopping 23.7% in Sussex; however, New Castle prices did drop from January to February.
Here are the statistics for February, from the Delaware Association of Realtors:
New Castle County
- Units sold, 451, down 5.85% from 479 in January; down 5.85% from 479 in February 2021.
- Median price, $285,000, down 5% from $300,000 in January; up 11.76% from $255,000 in February 2021.
- Active inventory, 399 units, down 10.54% from 446 in January; down 5.67% from 423 in February 2021.
Kent County
- Units sold, 203, up 16.67% from 174 in January; up 19.41% from 170 in February 2021.
- Median price, $287,000, up 5.52% from $271,990 in January; up 14.8% from $250,000 in February 2021.
- Active inventory, 246 units, up 10.81% from 222 in January; up 14.42% from 215 in February 2021.
Sussex County
- Units sold, 401, down 10.7% from 449 in January; down 2.91% from 413 in February 2021.
- Median price, $412,520, up 3.13% from $400,000 in January; up 23.7% from $333,495 in February 2021.
- Active inventory, 699 units, down 2.24% from 715 in January; down 21.02% from 885 in February 2021.
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Nationally, home sales in many markets are decreasing, but rising interest rates are just one factor. Low supply is also responsible, said Lawrence Yun, chief economist at the National Association of Realtors.
Existing home sales sank 7.2% in February from January. Compared to February 2021, sales decreased 2.4%.
Housing inventory at the end of February was up 2.4% from January, but still down 15.5% from February 2021.
“I expect the pace of price appreciation to slow as demand cools and as supply improves somewhat due to more home construction,” Yun said.
Delaware Association of Realtors president Dr. Susan N. Giove said, “Low inventory is definitely our biggest issue right now.”
The snowstorms earlier this year caused a pause in home sales, but that was short-lived.
“With such low inventory, it is very challenging just to get buyers into a house to see it before it draws multiple offers,” Giove said.
Buy now or wait?
Jeff Ruben, president of WSFS Mortgage, said mortgage rates and bond rates are usually forward looking, anticipating where the Federal Reserve is heading.
“The increases by the Fed have been well telegraphed. We are prepared for rates to continue to rise, but a lot of those future increases have already been priced in,” Ruben said.
What’s his advice for people interested in buying a home?
“If they think they’ve found the right place, they should act on it rather than wait,” said Ruben. “It’s only going to get more expensive.”
The jump in rates happened quickly. When the U.S. weekly average for a 30-year, fixed rate mortgage climbed to 4.16% March 17, that was the first time the rate exceeded 4% since May 2019, according to Freddie Mac. Then the rate climbed to 4.42% March 24 and rose again to 4.67% March 31.
“We have enjoyed an incredible run of very low interest rates,” said Ruben. “I think we were poised for rate increases just before pandemic happened but then there was real initiative to spur lower interest rates to help the economy during the pandemic. We’re now paying the price for that long-term period of accommodative lending.”
Freddie Mac said mortgage rates should continue to rise this year, and home prices may also go higher.
Nationally, the median sales price for existing homes, not new construction, was $357,300, up 15% from $310,600 in February 2021, according to the National Association of Realtors. This marks 120 consecutive months of year-over-year increases, the longest-running streak on record.
“Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” said Yun. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.”
Giove advised buyers to have the mortgage pre-approval letter ready before they begin looking at homes.
“That way, if they find a property that fits their needs, we can quickly write and submit an offer,” Giove said. “Also, in this tight market patience must be stressed –patience and not to be disillusioned if an offer is not accepted.”
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Demand for mortgages remains strong
The average monthly mortgage payment for new loans is 28% higher than last year, Yun said.
But that hasn’t dampened demand.
“The market remains swift with multiple offers still being recorded on most properties,” Yun said.
Chartrand said demand for mortgage refinancing at Del-One in March was “significantly higher” than a year ago and consistent with February.
“We are seeing an increase in refinancing via our first lien, fixed rate home equity loan due to there being no closing costs and rates as low as 3.75%” as of March 29, he said. “Although we anticipate lower loan demand, we are using every resource we have available to hold our portfolio interest rates as low as we can for as long as we can to serve our members and the community.”
At WSFS Mortgage, Ruben said requests are still high for mortgages.
“We have really strong activity for pre-approvals, talking to customers in the market who want to see what they can afford and borrow,” said Ruben.
Refinancing mortgages has slowed, which is typical when interest rates are rising, he said.
However, Ruben expects higher demand for home equity loans, even with rates rising, because of the jump in home values.
“As home equity increases, it becomes more and more tempting to extract that equity,” he said, for home improvement projects, college tuition for kids, even to buy a new car.
What makes interest rates rise?
Chartrand said interest rates are rising for a variety of reasons, but the two main reasons are the Federal Reserve has raised the target federal funds rate by 0.25% and the Federal Reserve is beginning to shrink its balance sheet by reducing bond purchases and holdings.
“The federal funds rate is the short-term borrowing cost for banks,” Chartrand said. “The increase in the fed funds rate and reduced bond buying trickles out to the economy as an increase in all interest rates.”
The Federal Reserve is trying to control inflation, part of its dual mandate from Congress which also includes controlling unemployment.
“Unemployment is low, measuring at 3.9% nationally and wage inflation is above 5% nationally. Therefore the Federal Reserve has turned its full attention to inflation, as opposed to unemployment,” Chartrand said.
However, fighting inflation will be more difficult than in the past 30 years because about $3.5 trillion in pandemic stimulus money is still working its way through the economy, he said.
Reporter Ben Mace covers real estate, housing and development news. Reach him at rmace@gannett.com.
