Buyers Face the Ripple Effects of Rising Interest Rates on Home Loans | New

ANDERSON, Ind. – A year ago, when they decided to sell their 11-acre property near Middletown and look for a more suitable home in the Pendleton area, Caleb and Samantha Laurie thought they were making a calculated decision.

Although the sale brought them a good return, the couple quickly found that the money would not bring them as much house as they had hoped.

“Everything we find is already too high, and it needs (to be) remodeled,” said Samantha Laurie. “Everything is exceptionally high. Everything we’re going to look at is very outdated.

What the Lauries are seeing in the local real estate market is analogous to what tens of thousands of potential buyers are experiencing across the country.

Inflation-induced interest rate hikes, ongoing building materials supply chain issues and inventory scarcity are driving a booming post-pandemic housing market faster than previously anticipated many industry analysts.

According to the National Association of Realtors, pending home sales nationwide fell 1.2% in March, marking the fifth straight month of declining contract activity. Year-on-year, the numbers are even starker, with March’s 8.2% drop marking the 10th consecutive month of falling sales.

The Federal Reserve has raised its benchmark interest rate twice this year, including a half-point hike earlier this month – the biggest in more than 20 years – and up to six more increases could occur by the end of the year, analysts said.

These higher loan costs, coupled with what some buyers see as a lack of attractive choices in available inventory, are pushing many people away. But some real estate agents say the decision to wait for the market to end comes with its own costs.

“You may only be competing with two or three people (for a house); however, that same $200,000 house last year is now $240,000, and that 3% interest rate is now a 5% interest rate,” said FC Tucker owner Steve Thompson. /Thompson in downtown Anderson.

“Your buying power as a consumer has gone down 20% because of price appreciation and because of interest rate appreciation. It’s now making people pay because they’re frustrated that they couldn’t buy the house they thought they were buying last year.

“Frustration” is a good word to describe what the Lauries have been through in their home search, especially since they’ve had to renew their loan pre-approval twice in the past eight months. Samantha Laurie said they were initially approved for a loan of around 3%, but that rate rose to 5.4%.

“We’re running out of time to find something,” she said. “You only have, I think, 90 days, so you’re running out of time and they have to take your credit out again.”

The perils of construction

Some buyers unable to find their ideal home turn to custom construction, but going this route comes with its own risk and expense. Builders in many areas, including Madison County, are still grappling with pandemic-related issues, including labor shortages among contractors and backlogs of materials from suppliers ranging from plywood to windows.

“What that means for us is that it takes longer to build a house because none of our contractors can find employees,” said Lawrence Johnson, president of Mustin Builders. “It takes longer to get the job done if you only have two guys instead of four.”

Johnson added that a small pool of available contractors also presents scheduling challenges and contributes to costs at every stage of the production process.

“Many contractors are competing for the same subcontractors, which can also lead to inflation,” Johnson said. “Every time the cost increases, the market shrinks.”

Another consideration driving up construction costs, he said, are permit fees and other costs incurred by developers, usually when construction is taking place on a larger subdivision.

Johnson said those expenses were growing even faster than those associated with building materials.

“A lot of people don’t realize that when you build a house, the developer has to pay for the street, the water lines, the curbs,” Johnson said.

He estimated that by the end of this year, the average cost of lots paid by developers will have almost doubled over the past three years.

out of the storm

Despite worrying signs that interest rates will continue to rise and purchasing power will continue to decline in the months to come, local real estate agents point out that, unlike the housing bubble that burst in 2008, the market will eventually correct itself. Getting there, however, will likely be painful.

“I heard a lot about an accident. I don’t think that will happen,” said FC Tucker/Thompson agent Amanda Malone.

“Hopefully things stabilize and continue to stabilize. I think prices will stabilize a bit. We’ll probably have higher interest rates, but they’re not as high as they used to be. , and people were still buying and selling, so hopefully that’s a good thing.

This week, the average rate for a 30-year fixed mortgage was 5.89%, according to NerdWallet. Some local real estate experts estimate that number could rise to 8% by the end of the year, which could end up relieving some pressure on the limited supply of homes for sale in the county.

“I wouldn’t say it’s turning more into what I would call a buyer’s market,” said Heather Upton, owner of Real Estate Pros of Keller Williams in Pendleton.

“We’re eliminating a lot of buyers, but that’s not necessarily a bad thing. Buyers who may still be in the market will have more choice. I still think we’re going to be in a seller’s market for a while. It just won’t be as intense.

Bernadine J. Perkins