Sun Sentinel Palm Beach Edition
As interest rates rise, homebuyers lock in mortgages
Fort Lauderdale homebuyer Thomas Alario considers himself fortunate. Amid a national run-up in home mortgage interest rates, he locked in a number that he and his wife could live with, and closed last week on their home.
“Right in the middle of the process, I saw interest rates were going up quite a lot,” he said. “We were in a rush to lock in the rates. I am not an expert in economics, but I was afraid the rates were going up.”
Alario, who is in local law enforcement, ended up with a rate of “just a little below 4.4 percent” for a 30-year fixed mortgage, slightly under the national average.
The pattern is being repeated in real estate brokerage and loan offices all over South Florida. Fearing rising interest rates, would-be homebuyers are speeding up
their home searches and quickly signing on the dotted line, according to lenders, brokers and developers.
Last week, mortgage rates actually decreased slightly, with the average rate for the benchmark 30-year fixed mortgage easing to 4.54 percent from 4.58 percent. But rates remain at their highest levels in four years. In January, the average was 3.95 percent.
As a result, area real estate agents and lenders are reporting strong consumer traffic.
Alario and his wife are among 70,000 members at Miramar-based Tropical Financial Credit Union. Doug Leever, mortgage sales manager at Tropical Financial, said the couple’s case is typical of what he has seen since the beginning of this year. Among the credit union’s members, he said, there is “definitely more urgency to purchase your home and lock in before the rates are going up. If the rates go up, that might price somebody out of a house.
“The [home] purchase business is very strong,” Leever said. “Our purchase business is up 16 percent over last year. The pipeline we have in March over February is up. We have a very good pipeline going into April.”
Tirso San Jose, vice president of residential development at SobelCo of Boca Raton, said rising rates tend to convert undecided fence sitters into buyers. The company’s projects include the Galleria Lofts and 321 at Water’s Edge, both in Fort Lauderdale.
“On a generalized basis, as interest rates start to go up, those who are real buyers pull the trigger and buy,” he said.
Mark Sadek, district sales manager at the Coral Springs office of Keyes Realty, said that as rates go up, buying power shrinks. Homebuyers are telling themselves they’d “better get off the fence and look at what’s available and make an offer.” He said his company’s financing arm has seen an increase in requests for pre-approvals.
While rising rates have triggered anxiety among consumers, would-be buyers have employed different tactics to deal with the ascent in the cost of borrowing. Few are giving up on the quest for a new home.
According to a late 2017 survey conducted by the national real estate brokerage Redfin, 75 percent of 4,000 respondents nationwide indicated they would alter their home search plans in some way if interest rates surpassed the 5 percent mark. The survey included buyers and sellers, as well as those who tried or planned to do a deal.
Twenty-seven percent said they would slow their searches to see if rates came back down again; 21 percent said they would increase their urgency to buy before rates climbed higher; and another 21 percent said that while their urgency would not change, they would move their home searches to other areas or buy a smaller home.
Only 6 percent of the respondents said they would cancel their plans to buy a home, and 25 percent of the respondents said there would be no impact on their searches.
Buyer interest has been resilient in the face of rising rates, with statewide and South Florida regional sales generally on the rise, according to Realtor groups that track monthly sales. Prices are also up.
“We’re not seeing that the market is slowing down as a result of the interest rates changing,” said Nancy Klock Corey, Southeast Florida regional vice president for Coldwell Banker. “That was the natural assumption.”
People bought in the 1980s, Corey recalled, when rates exceeded 11 percent. But higher rates do force consumers to reduce their expectations.
“I do think the bottom line is that as the interest rate goes up, you get less house,” she said.
San Jose of SobelCo agreed.
“We have a half a point [increase] or a point on a [$500,000] unit, that’s a lot,” he said. “One point just dropped you down from buying a bigger unit to a small unit.”
Those buying luxury properties, such SobelCo’s units at 321 Water’s Edge, are mostly paying cash, so mortgage rates aren’t an issue, San Jose said.
Despite the rate worries among homebuyers, Greg McBride, chief financial analyst at Bankrate.com, thinks sharp increases may well be done for the year.
“Mortgage rates may not end the year much higher than the levels we have seen in recent weeks,” he said. ”The run-up we saw in the first part of the year isn’t necessarily going to be sustained at that pace.
“We’ve already seen rates pull back over the last week or so.”
Nonetheless, McBride said, “it’s prudent to pay attention” to rate levels because loan payments weigh heavily on consumers’ monthly budgets.
“You have to make sure you’re on a solid financial footing all the way around,” he said. That means taking measures such as building up savings and reducing debt.
“Those steps are equally important to qualify for the best rates,” he said.