Texas pressure: A series looking at the high cost of high growth in North Texas.
Mortgage rates are on the rise, putting an end to the record low of the past two years. This causes a perfect storm for buyers when combined with rising home prices and general inflation.
The average 30-year mortgage rate hit 5% for the first time in more than a decade in April, and has since risen to 5.3% as of May 12, according to Freddie Mac.
At a rate of 3.11% in December with a down payment of 20%, the principal and interest for a $350,000 home would be $1,197 per month before taxes and insurance, according to an estimate from Bankrate.
At 5.3%, a home at the same price would have a monthly payment of $1,554. That’s a difference of $357 in less than five months.
The median selling price for a North Texas home has reached $400,000, according to the Texas A&M University Texas Real Estate Research Center. Last May, a home with a median price of $340,000 at a 3% interest rate would have received a monthly payment of $1,146. Today, a median home would cost $630 or $1,776 per month.
Mortgage rates have been higher in previous decades, but combining rates and a competitive market has proven difficult. Jennifer Salazar, chief loan officer at Fairway Independent Mortgage Corp. in Garland. First-time home buyers are feeling the most pressure and some have been fully priced.
“We all have to have tough conversations, and I don’t think brokers or lenders know how to say you’re in a market where you may never be able to buy something,” Salazar said. “I don’t think anyone really knows how to say that in a nice way right now.”
A recent survey by Bank of America found that for a home, the majority of potential buyers are willing to reconsider their neighborhood and distance from entertainment, restaurants and shopping.
“Customers have to decide what they are willing to sacrifice in order to be able to afford this higher amount,” said Greg Howe, vice president and head of the lending market for Bank of America in Dallas-Fort Worth.
“As these prices go up, they reduce your purchasing power in a way that — in a market like this, where you add those other variables — it can be really impactful,” said Brian Patchulsky, senior managing director of Compass in Dallas.
The organization’s chief economist, Mike Fratantoni, said in a statement on May 5 that the Mortgage Bankers Association expects interest rates to “stabilize near current levels.”
Maryam Hamdo, a first-time homebuyer who works in the health insurance industry, had to extend her search to Wiley and Princeton to stay within her budget of $450,000 or less. She paused her search from February to December of last year, frustrated that she couldn’t find a home she loved in her price range in or around Plano.
“It turns out I can’t get a place here on my own,” Hamadou said.
When I started researching last January, mortgage rates were less than 3%. To move forward with further increases in both rates and home prices, I decided to move again in the winter.
It is also focusing on new construction – even with the possibility of staying on a waiting list for up to a year – to avoid the unpredictability of bidding on a home well above asking price.
“I decided I needed to come back again before things got worse,” Hamdo said.
Bank of America found that 40% of buyers say interest rates are too high is one reason they are reluctant to buy. However, the low supply of homes on the market and higher prices may be the biggest factors on the minds of many buyers. Howe said the prices didn’t have much of an impact on overall demand in his office.
“We have a lot of customers who are still interested in buying,” Howe said. “The biggest problem they are facing now is only accepting their offer, as there is not enough supply in the market.”
Another first-time buyer, Kevin Turner, said he’s bid on about 20 homes since last year, and encountered situations where paying upwards of $30,000 to $50,000 over asking price wasn’t enough. Increased mortgage rates haven’t affected his ability or willingness to buy yet, but he said that could change over the next six months.
“But if anything, if the interest rate goes up, there is a part of me that is moving, well, maybe that will make the competition slow a little bit,” he said. “I didn’t see that, though.”
Turner said he regrets not having jumped into the market in 2020 when prices were too low and prices weren’t so extreme — a suggestion from his girlfriend, who predicted the market would explode next year.
“She’s not a financial or real estate expert, but her name is a man,” Turner said. “Maybe I should have listened to it.”
Note: This story was updated on Friday to correct the year-over-year difference between monthly mortgage payments.