Save Money in this Sunday's paper

comments

Higher mortgage rates won’t dampen Charlotte housing market, economists say

Don’t expect this week’s rise in mortgage rates to stall the Charlotte region’s housing recovery, economists said Friday.

Rates are still low by historical standards, demand is still strong, and people are still moving to Charlotte, they said.

The rate rise followed comments last week by Ben Bernanke, chairman of the Federal Reserve, that the Fed will begin slowing its bond purchasing later this year in an effort to ease away from years of heavily regulated monetary policy. That sent U.S. mortgage rates surging from 3.93 percent to 4.46 percent, a two-year high.

The news sent shockwaves through the housing market, leaving those searching for a home – or planning to refinance – wondering if their chance for affordability was gone.

It’s not, said Mekael Teshome, an economist with PNC Bank.

“This isn’t going to dampen the housing rebound,” Teshome said. “Even with the spike, I won’t alter my forecast for Charlotte: There’s still a strong demand for housing here. It’s affordable. And people that are thinking about buying are still going to buy.”

In fact, the time to buy is becoming increasingly attractive, as people hope to take advantage of mortgage rates before they jump again, said Chris Cope, president of Allen Tate Mortgage Services.

“We’re in a good place,” Cope said. “The 4.5 percent rate just isn’t bad.”

Historically, a 4.46 percent mortgage rate is low compared to rates seen decades ago, said Tom Reddin, former president of Charlotte-based Lending Tree. Mortgage rates jumped to their highest in October 1981, with buyers paying 18.45 percent.

Mortgage rates hit a record low in November 2012 at 3.31 percent, keeping this week’s 4.46 percent rate still on the low end, Reddin said.

For months, the recovering housing market has been seen as a boon to sellers, with Charlotte home prices climbing month after month. Standard & Poor’s Case-Shiller price index reported this week that Charlotte home prices climbed 7.3 percent in April from the same month last year.

But despite what is largely considered a sellers’ market, Cope said that homebuying is still affordable – even with the spike in interest rates.

“When you look at the combination of housing prices and mortgage rate payments, it’s still a good time to buy,” Cope said. “Rates have moved up. There’s no denying that. But things are good.”

Cope added that many other factors are driving the housing market.

“The supply of existing homes is very low in the area,” Cope said. And as Charlotte’s population continues to rise, coupled with a trend of business expansion in the region, there will only be increased demand for housing in the area, he said.

Inventory for residential listings declined 27.5 percent in May compared with May 2012 – leaving the region with a five-month supply of homes for sale. A six-month supply of available homes is considered a healthy balance.

Cope said he’s seen all areas of Charlotte have consistent growth in sales. Increasingly, even homes that have been on the market for months are being closed on.

Despite widespread concern that the rise in interest rates would slow the housing market, Teshome said Charlotte has positioned itself as a city of strong economic growth.

“Job growth is stronger here compared with the rest of the nation, and there’s a strong household population,” Teshome said. “And businesses are finding it increasingly attractive to expand here.”

Buying less house

Mark Vitner, a senior economist with Wells Fargo, expects rates to rise more – but not as fast as many are expecting.

“I don’t want to get a false sense of complacency that rates will remain this low,” Vitner said. “But it may be many years until we get back to a normal rate for a healthy economy, around 5.5 to 6 percent.”

Until then, he expects people to keep buying and selling, with only a slight drop-off in consumers’ purchasing power.

“The only thing that may change is people will tend to buy less house,” Vitner said. “They may have to opt for fewer features, fewer higher-priced items. But they’ll still buy.”

The leap to 4.46 percent this week reflects the largest weekly increase of the 30-year fixed rate loan since 1987 – a change that could mean tens of thousands of additional dollars spent over the lifetime of a loan.

Now, a 4.46 percent rate would leave a buyer with a $200,000 mortgage paying about $1,008 a month. That’s considerably higher than average payments when mortgage rates hit a record low of 3.31 percent – resulting in payments of $877 a month. That difference amounts to $47,160 over the lifetime of the loan, not including additional expenses such as taxes or initial down payments.

The shift in higher mortgage payments has left some people reconsidering if now is the right time to buy.

Mortgage applications decreased 3 percent last week, according to the Mortgage Bankers Association. Refinancing applications saw a deeper cut, dropping 5 percent from the previous week to the lowest level since November 2011.

“The refinance applications have dried up this week,” said Phil Mahoney, president and CEO of American Security Mortgage in Charlotte. “We saw a 50 or 60, maybe even 70 percent drop in the number that we were getting.”

But Mahoney said purchase mortgages have remained consistent despite a drop-off in refinancing.

Purchase mortgages won’t see large drop-offs because they are less sensitive to interest rates, Reddin said.

But Reddin said refinancing applications might see a decline. It only makes sense to refinance if a homeowner can save between 1/2 to 1 percent or more on a mortgage rate, he said.

‘Addiction’ to stimulus

U.S. Rep. Robert Pittenger, who represents the North Carolina district that includes Charlotte, said he welcomes Bernanke’s plans to ease monetary policy.

“For years, we’ve been on these steroids, or painkillers,” Pittenger said, referring to Bernanke’s economic policy strategy. “It’s important (Bernanke) pulls back and goes back to a standard, basic monetary policy, and not overly micromanage our country.”

“We have an addiction to the federal stimulus.”

He said it’s true that pulling back will drive interest rates up, but he welcomes the change.

“We’ve had these rates, they haven’t grown the housing industry,” said Pittenger, a Republican. “These rates haven’t created jobs.

“There might be some people who wish they had refinanced at a lower rate, but if we free up the market again, we’ll all look back and be very pleased when we’ve started to create more jobs.”

Cope, at Allen Tate, said it’s still too early to fully assess Bernanke’s intentions – and what they will ultimately mean for the economy and the housing market.

“Nobody is sure what to make of Bernanke’s comments,” Cope said.

McCabe: 704-358-5197 Twitter: @mccabe_caitlin
Hide Comments

This affects comments on all stories.

Cancel OK

The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.

Have a news tip? You can send it to a local news editor; email local@charlotteobserver.com to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.

  Read more



Hide Comments

This affects comments on all stories.

Cancel OK

The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.

Have a news tip? You can send it to a local news editor; email local@charlotteobserver.com to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.

  Read more


Quick Job Search
Salary Databases
CharlotteObserver.com