Rising interest rates affect mortgage costs, not demand in Delaware

Rising interest rates could cost hundreds of new home buyers in higher monthly mortgage payments, but in Delaware, demand for home loans and refinancing remains strong.

As of March 31, the national average for a 30-year fixed-rate mortgage was 4.67%, according to the Federal Home Loan Mortgage Corporation, known as Freddie Mac.

That’s up from about 3.05% in March 2021, said Del-One Federal Credit Union chief loan officer John Chartrand.

A 1 percentage point increase in the interest rate on a 30-year fixed rate mortgage for a $300,000 home will result in an additional $170 to $175 on the monthly mortgage payment, excluding taxes and insurance, depending on the method of regularization used by the lender, says Chartrand.

Home sales in Delaware are mixed, lagging in New Castle and Sussex counties while trending higher in Kent, but the reasons may have more to do with the inventory of homes available for sale. sale. Stocks are down in New Castle and Sussex counties but higher in Kent.

A trend that is the same for all three counties is house prices from a year ago, up 11.76% in New Castle, 14.8% in Kent and a whopping 23, 7% in Sussex; however, New Castle prices fell from January to February.

Here are the February stats from the Delaware Association of Realtors:

New Castle County

  • Units sold, 451, down 5.85% from 479 in January; down 5.85% from 479 in February 2021.
  • Median price, $285,000, down 5% from $300,000 in January; up 11.76% from $255,000 in February 2021.
  • Active inventory, 399 units, down 10.54% from 446 in January; down 5.67% from 423 in February 2021.

Kent County

  • Units sold, 203, up 16.67% from 174 in January; up 19.41% from 170 in February 2021.
  • Median price, $287,000, up 5.52% from $271,990 in January; up 14.8% from $250,000 in February 2021.
  • Active inventory, 246 units, up 10.81% from 222 in January; up 14.42% from 215 in February 2021.

Sussex County

  • Units sold, 401, down 10.7% from 449 in January; down 2.91% from 413 in February 2021.
  • Median price, $412,520, up 3.13% from $400,000 in January; up 23.7% from $333,495 in February 2021.
  • Active inventory, 699 units, down 2.24% from 715 in January; down 21.02% from 885 in February 2021.

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Nationally, home sales in many markets are down, but rising interest rates are just one factor. Weak supply is also to blame, said Lawrence Yun, chief economist at the National Association of Realtors.

Existing home sales fell 7.2% in February from January. Compared to February 2021, sales decreased by 2.4%.

Housing stock at the end of February was up 2.4% from January, but still down 15.5% from February 2021.

“I expect the pace of price appreciation to slow as demand cools and supply improves somewhat due to increased home construction,” Yun said.

Delaware Association of Realtors president Dr. Susan N. Giove said, “Low inventory is definitely our biggest issue right now.”

Snowstorms earlier in the year caused a pause in home sales, but this was short-lived.

“With such a low inventory, it’s very difficult to get buyers into a home to view it before it has multiple offers,” Giove said.

Buy now or wait?

Jeff Ruben, president of WSFS Mortgage, said mortgage rates and bond rates are generally forward-looking, anticipating the direction the Federal Reserve is heading.

“The Fed increases were well telegraphed. We are ready for rates to continue to rise, but many of these future increases have already been priced in,” Ruben said.

What is his advice to people interested in buying a home?

“If they think they’ve found the right place, they should act rather than wait,” Ruben said. “It will only get more expensive.”

The jump in rates happened quickly. When the U.S. weekly average for a 30-year fixed-rate mortgage jumped to 4.16% on March 17, it was the first time the rate had exceeded 4% since May 2019, according to Freddie Mac. Then the rate climbed to 4.42% on March 24 and climbed back up to 4.67% on March 31.

“We’ve had an incredible run of very low interest rates,” Ruben said. “I think we were on the verge of raising rates just before the pandemic, but then there was a real initiative to stimulate lower interest rates to help the economy during the pandemic. We are paying now the price of this accommodative long-term loan period.

Freddie Mac said mortgage rates are expected to continue to rise this year and house prices could rise as well.

Nationally, the median sale price for existing homes, not new builds, was $357,300, up 15% from $310,600 in February 2021, according to the National Association of Realtors. This marks 120 consecutive months of year-over-year increases, the longest streak on record.

“Housing affordability continues to be a major challenge as buyers take a double whammy: rising mortgage rates and sustained price increases,” Yun said. “Some who previously qualified for a 3% mortgage rate are no longer able to buy at the 4% rate.”

Giove advised buyers to prepare the mortgage pre-approval letter before they start looking for homes.

“That way, if they find a property that suits their needs, we can quickly write up and submit an offer,” Giove said. “Also, in this tight market, you have to insist on patience – patience and not being disappointed if an offer is not accepted.”

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Demand for home loans remains strong

The average monthly mortgage payment for new loans is 28 percent higher than last year, Yun said.

But that hasn’t dampened demand.

“The market remains fast with multiple offers still registered on most properties,” Yun said.

Chartrand said mortgage refinance demand at Del-One in March was “significantly higher” than a year ago and consistent with February.

“We are seeing an increase in refinancing through our first fixed rate mortgage due to no closing costs and rates as low as 3.75%” as of March 29, he said. “While we anticipate a decline in loan demand, we are using all the resources at our disposal to keep our portfolio interest rates as low as possible for as long as possible to serve our members and the community.”

At WSFS Mortgage, Ruben said mortgage applications are still high.

“We have a very strong activity for pre-approvals, talking to market clients who want to see what they can afford and borrow,” Ruben said.

Mortgage refinancing has slowed, which is typical when interest rates rise, he said.

However, Ruben expects higher demand for home equity loans, even with rising rates, due to rising home values.

“As the equity in the house increases, it becomes more and more tempting to extract that equity,” he said, for home improvement projects, tuition for children, even to buy a new car.

What drives interest rates up?

Chartrand said interest rates are rising for a variety of reasons, but the two main reasons are that the Federal Reserve has raised the target federal funds rate by 0.25% and the Federal Reserve is starting to shrink its balance sheet by cutting interest rates. purchases and bond holdings.

“The federal funds rate is the short-term cost of borrowing for banks,” Chartrand said. “The increase in the federal funds rate and the reduction in bond purchases ripple through the economy in the form of an increase in all interest rates.”

The Federal Reserve attempts to control inflation, as part of its dual mandate from Congress, which also includes controlling unemployment.

“Unemployment is low at 3.9% nationally and wage inflation is above 5% nationally. Therefore, the Federal Reserve has turned its full attention to inflation, as opposed to unemployment,” Chartrand said.

However, fighting inflation will be more difficult than in the past 30 years as about $3.5 trillion in pandemic stimulus money continues to thread its way into the economy, he said. .

Journalist Ben Mace covers real estate, housing and development news. Contact him at [email protected]

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