Houston homebuyers could be locked out by higher mortgages

Houston homebuyers are watching with bated breath as mortgage rates climb, with some rushing to make deals before rates rise, others downsizing their dream homes and still others being shut out of the market altogether.

After the frenzied housing market of the past two years, mortgage rates — which have jumped two percentage points since the end of last year — have the potential to cool Houston’s scorching market and wipe out some of the competition. for the limited supply of houses. But any improvement for buyers comes at a cost: hundreds of additional dollars in monthly payments.

First-time buyers Matt and Erica Hogan, for example, started house hunting in January. By the time they found one in late March, after bidding and losing on three other properties, interest rates had risen one percentage point to 4.8%. They pay almost $270 over a month to cover the mortgage on their townhouse in the Rice Military neighborhood, but they still consider themselves lucky.

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Average mortgage rates climbed again last week to an 11-year high of 5.11%, according to government-sponsored mortgage finance company Freddie Mac.

“If it was now, I don’t know if we would have bought; I think we could have said, “Let’s wait and wait for the market to stabilize,” said Erica Hogan, who works with Kingshill | Martini Group at Compass. “Or we would have started looking at a lower budget.”

Cam Collins, a veteran Houston realtor with eXp Realty, said he’s starting to see higher mortgage rates forcing buyers to lower their expectations. One of his clients, a roofer in Houston, put off buying a house for his growing family last year. Now he probably can’t afford a house the size he wanted.

“He’s going to have to settle down,” Collins said. “His hope to get this nice big four bedroom for all his kids and his beautiful new wife to his income – the window is gone.”

Houston’s housing market, like local markets across the country, is booming, buoyed by low interest rates, a strong job market, growing population, and voracious demand outpacing supply. Home sales and prices have hit record highs in each of the past two years; last month, the average selling price of a home in Houston topped $400,000 for the first time.

For sellers, the market has proven to be a boon. For buyers, not so much.

Katy Rivera, a teacher, decided last year that she wanted to move back to Texas from Washington state to be closer to her family. She came to live with her parents, expecting it to take her about a month to buy a house in Houston.

Seven months and six unsuccessful offers later, Rivera and her husband Moises finally landed a house in Sugar Land in January. Rivera believes it was the personal letter she wrote to the sellers that helped close the deal. She and her husband, who recently retired from the military, paid $476,000 – $6,000 above the asking price – and bought it without seeing it.

“In this market, there were people who waived inspections, waived all requests for fixes and upgrades, offered money and offered in the market,” said Rivera, 42. “So we just felt like we were never going to have a home.”

Since the Riveras locked in their mortgage at 2.9%, rates have only gone up, rising in the first quarter at the fastest pace on record, according to Freddie Mac. A buyer looking for a $320,000 loan would pay about $350 more in monthly payments than at the start of the year, assuming the average 30-year mortgage rate and a 20% down payment.

Rising interest rates are almost certain to slow the pace of selling and price appreciation, but the extent and speed will likely depend on how rates move. Many economists expect average mortgage rates to stay around 5%, assuming inflation moderates in the second half of the year.

Sellers still rule

While sellers still have the upper hand, supported by a tight supply of homes, the market is showing signs of slowing. US home sales have fallen for two straight years month, slip up about 4.5% in March, according to the National Association of Realtors. Mortgage applications have fallen for 11 straight weeks, largely due to a sharp decline in refinances, according to the Mortgage Banker’s Association.

In Houston, pending sales — of homes under contract — have fallen for four straight weeks, according to the Houston Association of Realtors. Projections also have.

Nadia Evangelou, senior economist at the National Association of Realtors, estimates that rising interest charges have cut about 10% of Houston households out of the housing market, compared to about 13% nationally.

“If you’re a first-time home buyer who doesn’t have a lot of money, those are the hardest hit buyers,” said Justin Ahramjian, senior loan officer at Mid America Mortgage in Houston. “I have to have a lot of tough conversations, especially with the people who qualified [for a mortgage] in the 2-3% interest rate range and got nothing [they could buy] and now I have to tell them their mortgage payment is $300 more a month or sometimes more.

The National Association of Realtors estimates that home sales will drop about 10% nationwide this year. Houston, however, will likely experience less decline as housing remains relatively affordable here.

However, local real estate agents still expect prices to continue to rise and competition to remain tough due to the lack of homes on the market. Housing inventories slipped 1.3 months, meaning all the homes on the market would sell in just over a month at the current rate of sales. A six month supply is considered a balanced market.

James and Jessica Frazier – a couple in their early 30s looking for a home in Sugar Land in the $750,000 price range – say they check online listings about 30 times a day hoping that the good house will appear.

The Fraziers, working with Ron Jenkins of Realm Real Estate Professionals-Katy, learned not to get too attached or worried about any particular home.

“These cash buyers, they pick up everything,” James Frazier said. “This is probably not the market to look for your forever home, I’ll tell you that.”

eye of the beholder

The local market will also benefit from support from people moving from more expensive coastal markets to Houston, where the average home price of around $411,000 is considered a bargain, said Patrick Jankowski, economist at the Greater Houston Partnership. , a business-funded economic development group. A net 31,921 people moved here in the 12 month period leading up to July 2021.

Two of these newcomers are Paige and Andy Lujan, who moved from Los Angeles to Houston last year and rented a house in the heights before finding their dream home in Garden Oaks, near where Paige Lujan opens a new restaurant, Upside Pub. Lujan, working with Vikki Evans at Compass, said they could never have afforded a three-bedroom house in California

“We decided to move to Houston to start making long-term investments in our lives and having a good quality of life that we could afford,” said Lujan, 36. “Moving to Houston had a huge impact. We will never be able to afford a house of this caliber in Los Angeles. »

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