“We’ve not seen much, if any, impact from rising interest rates,” said David Scott, principal broker at the Scott Group of Colorado Landmark Realtors. The biggest impact on the market is lack of inventory. “We’ve got buyers,” he said. “We don’t have property for those buyers.”
The number of homes for sale in Boulder County and in the Denver metropolitan area has fallen behind demand. With so few properties on the market, and so many buyers eager to lock in historically low interest rates before they climb any further, many “for sale” signs quickly disappear.
“I don’t think there will be a significant impact in the next 12 months as a result of changes in interest rates,” said Scott. “The biggest risk to us in Boulder is lack of inventory. Low inventory levels will likely result in reduced sales in the months ahead. In fact, we may have already passed the peak for 2013.”
Predicting interest rates is challenging, but recent movement is definitely upward. U.S. mortgage rates surged in late June, reaching their highest level in two years. The average rate on the 30-year fixed loan jumped to 4.46 percent, highest since June 2011. It was the largest weekly increase in the 30-year rate since April 1987, according to mortgage buyer Freddie Mac. The average rate on the 15-year mortgage jumped to 3.50 percent from 3.04 percent, highest since August 2011.
While many people are reacting to the higher rates with sticker shock, the rates are still relatively low, especially when compared with the all-time high of 18.63 percent for a 30-year loan in 1981 and rates in the double digits through the 1980s.
“People got used to unrealistically low interest rates,” said Scott. “Even if they go up a point or two, they are still great rates.”
People who are pre-qualified for financing will still be able to buy a home, Scott said. “In some cases, people can’t buy as much home as they qualified for at a lower rate. So it’s an adjustment in their lifestyle.”
“Mortgage rates have gone back to where they were two years ago,” said Lou Barnes, a mortgage broker with Premier Lending, LLC. “They were the lowest interest rates ever seen. Today there is some shock value in having rates rise so quickly.”
In 2012, with potential buyers skittish about the economy and housing prices, they delayed purchasing a home, believing they could get a better deal when things stabilized, Barnes said. “The fear led to a sense now of missing the boat.”
Demographics paint a clear picture of today’s market conditions, Barnes said. There has been a mismatch between population growth and the construction slump during the recession.
The state’s population grew by 800,000 people in 11 years, while building permits fell 90 percent, according to the Colorado Department of Local Affairs.
When the economy crashed in 2008, financing for new residential projects all but stopped, and for the next several years, there were few new homes to buy.
“Building came to a stop, and the population continued to rise,” Barnes said. “That demographic mismatch shows up in prices.”
But the lack of new construction is only part of the story. Tight lending standards and low amounts of equity in some homes meant that many homeowners did not qualify for mortgages to buy new houses. Uncertainty about the market and their personal economic outlook kept many sellers from putting their homes on the market.
A more pressing problem than higher rates is the availability of credit for home borrowers. The biggest barrier for many homebuyers has been difficulty obtaining a mortgage. Banks have tightened lending standards since the financial crisis erupted in 2008.
Jennifer Asbury, senior mortgage banker at Premier Lending LLC, said it’s important that people who were prequalified some time ago discuss with their lenders how they may be affected by the latest rates. They need to confirm that they still qualify and make sure they are comfortable with the revised payments.
For example, someone who is prequalified for a $417,000 loan at a mortgage rate of 3.5 percent for a 30-year loan would see their monthly payment increase $240.60 a month if rates rose to 4.5 percent.