REAL ESTATE MARKET HEATS UP
Feature Story
Mortgage interest rates have been at all-time lows for so long that it almost seemed impossible that they would start to rise.
But in the last few months, those lingering low rates seem to have given way to a significant increase as wage inflation and other factors are starting to take a toll.
“The biggest thing we’re going through right now is interest rates are going up dramatically,” said Spencer Lewallen of VanDyk Mortgage Corp. “No one knows for sure why they’re going up. You can read four different articles and get four different opinions, but the underlying crux is inflation. Wage inflation is what’s going to cause problems. The idea is almost any kind of labor, there’s a shortage. All the way down to restaurants, but certainly in the trades. So the only way employers are going to be able to retain employees is to raise wages, which is inflationary.”
In just the past two months, rates have gone from 3¾-4-percent to 4¾-5 percent.
But that might not necessarily be a bad thing as it could act as a spur, said Kris Jones, vice president of mortgages at Kirtland Federal Credit Union.
“What we have noticed over all the years with the rates being so low, people were a little bit complacent,” he said. “Fence sitters are what we called them. Waiting on the sidelines, waiting to see, thinking rates might come back down. Now that there’s an actually movement, while we don’t want it to become excessive, what it has actually done is make some of the members more players in the game. They’re saying, ‘If we’re going to move, we better get moving.’ If you’re thinking about doing it, now is the time to be a lot more serious about it.”
And to further encourage its members, Kirtland Federal credit Union is open to almost any resident of Albuquerque to join, and is offering several limited-time specials, Jones said.
“The special is targeting two products,” he said. “One is a 15-15 (adjustable rate mortgage) and what that means is it is fixed for 15 years and there is a one-time adjustment for the next 15 years.”
This allows Kirtland to offer a lower initial interest rate, Jones
said, allowing the customer to lock in a low rate even as interest levels climb.
The deal with the program is that the $650 underwriting fee is refunded back to the member once the loan is closed. The same incentive also is offered on 15-year fixed-rate loans—a great choice for members with big down payments or buying a second home.
“We didn’t we feel that we had to do it, as much as we should do it,” Jones said. “We at Kirtland have always been trying our very level to provide the best products and services for our members. One thing we don’t have to do is take huge profits because with all of our members being local, underwriting and origination is all right here. Nothing goes out of here and we think that’s a great thing.”
VanDyk Mortgage also has a special program designed to aid home buyers, Lewallen said. “The program we have here is for no mortgage insurance,” he said. “The interest rate is a little higher so you pay for it that way, but instead of mortgage insurance that you can’t write off, you can still get into a house with 3-percent down and no mortgage insurance. That’s unique. That’s a new thing. And someone’s payment is less even though they have a higher rate because they don’t have to pay mortgage insurance.”
That’s a big deal because the insurance, which provides no benefit to the homeowner, can be a significant cost. On a $200,000 loan with a loan-to-value of 95 percent, someone with an average credit score would be paying about ¾ of a percentage point, which comes to $130 monthly. And that insurance doesn’t drop off until the equity reaches 80-percent or lower.
When it comes to writing off interest, that’s still a big deal despite the new tax deal that doubles the individual deductible.
“They probably won’t know the impact until this summer when the whole law gets discerned and what the new regulations hold,” Lewallen said. “The big thing in that tax law is the personal deduction and the interest write off. You can only write off interest balance of $750,000. But that’s not going to affect Albuquerque much. Santa Fe, yes and much bigger cities where they have more higher-end homes.”
Some home buyers, particularly firsttimers who are buying in the $200,000 and lower range, may not recoup much more than the standard deduction now, Jones said.
But most people are not really buying a home with that in mind anyway, he added.
“People buy houses generally to live in, not to worry about whether they’re getting a tax deduction,” Jones said. “It’s for their family and for it to be something they own. In their mind, it’s still a good thing to own a home.”
At this point in Albuquerque, however, it’s tough a thing, particularly for first-time buyers to find a home in their price range.
“In the Albuquerque metro area, we still suffer from low inventory,” he said. “We wish there were more houses on the market for people to choose from. With a low inventory, if you’re a seller you sell your house quickly. In some cases, you get multiple offers on houses. I think the inventory will start to pick up. Other markets are on fire, I don’t know that we’re going to be on fire, but it is heating up.”