Ris­ing in­ter­est rates, stag­nant wages sti­fle hous­ing market

Daily Press - - Classifieds - By Justina Vasquez Bloomberg

This is how hous­ing mar­kets turn. Slowly.

Six years of home-price gains out­pac­ing wage growth; bid­ding wars re­placed by sales at the ask­ing price; days or weeks on the market turn­ing into months; ris­ing mort­gage rates. First-time shop­pers start to get priced out, mak­ing it harder for move-up buy­ers to sell, and the slow­down rip­ples grad­u­ally up the real es­tate food chain.

“Every sin­gle market in the coun­try has an en­trylevel prob­lem,” said Can­dace Adams, who over­sees Berk­shire Hath­away HomeSer­vices’ op­er­a­tions and agents across Con­necti­cut, Mas­sachusetts, New York and Rhode Is­land.

While U.S. home prices have gained al­most 60 per­cent since March 31, 2012, ac­cord­ing to the S&P CoreLogic Case-Shiller 20-City Com­pos­ite In­dex, house­hold in­come is up a lit­tle less than 30 per­cent in the same pe­riod, Bureau of Eco­nomic Anal­y­sis data show. The aver­age rate for a 30-year fixed mort­gage rose from about 3.85 per­cent at the start of 2018 to about 4.74 per­cent now, Bankrate.com re­ports. Next year, it’s ex­pected to rise fur­ther.

A buyer with a $2,500 monthly hous­ing bud­get has lost al­most $30,000 in pur­chas­ing power this year, ac­cord­ing to Redfin Inc., a na­tional bro­ker­age.

In Orange County, Calif., more than 30 per­cent of homes for sale in the metro area would be­come un­af­ford­able to buy­ers with a $3,500 monthly bud­get, Redfin es­ti­mates. In San Jose, that num­ber would be al­most 40 per­cent.

A half-point in­crease on a mort­gage means cutting the price by about $25,000 and the size of the house by as much as 200 square feet. In cities where prices have gained the most, an in­crease of as lit­tle as half a per­cent­age point in the bor­row­ing rate can be the dif­fer­ence be­tween buy­ing and con­tin­u­ing to rent.

Mi­ami prices are up al­most 70 per­cent since March 2012, ac­cord­ing to CoreLogic Case-Shiller. And many buy­ers are get­ting wor­ried about in­ter­est rates, said Liz Ho­gan, a Re­al­tor at Com­pass.

She has a client look­ing at a house in Pinecrest, Fla., listed at $899,000. The seller has been out of town, de­lay­ing the deal, and the client is get­ting antsy, she said.

“His thing to me every day is, ‘I’ll be pa­tient, but not that pa­tient be­cause my mort­gage bro­ker told me the rates are go­ing up and if they go up any more I’m not go­ing to be able to af­ford this house,’” Ho­gan said. “He’s pet­ri­fied he’s go­ing to get priced out.’’

Higher rates have the big­gest im­pact on en­trylevel buy­ers, said Kim O’Con­nor, an agent at 8z Real Es­tate in Den­ver.

“I have re­ally sharp mil­len­nial clients who were first-time home­buy­ers in the late spring, and def­i­nitely in­ter­est rates were on their minds the whole time,” O’Con­nor said. They were in a hurry to buy be­fore an­other rate hike.

But in­ter­est rates are only part of the story. Ar­eas with high taxes, like Chicago, New York and New Jer­sey, have been af­fected by last year’s tax bill, which capped the amount of state taxes and mort­gage in­ter­est that could be writ­ten off on fed­eral re­turns.

Buy­ers from high-tax states are com­ing to Flor­ida, which has no state in­come tax, Ho­gan said. She cited two re­cent clients — one from the New York area and one from Greenwich, Conn. — who are house shop­ping in South Flor­ida to es­tab­lish residence there, even as they con­tinue work­ing in New York.

CRISTINAIRANZO/GETTY

The aver­age rate for a 30-year fixed mort­gage rose from about 3.85 per­cent at the start of 2018 to about 4.74 per­cent now. A half-point in­crease on a mort­gage means cutting the price by about $25,000 and the size of the house by as much as 200 square feet.

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