Houston homebuyers may get shut out by higher mortgages

Houston homebuyers are anxiously watching mortgage rates climb, with some rushing to close deals before rates go higher, others downsizing their dream homes, and still others getting cut out of the market altogether.

After the frenzied housing market of the past two years, mortgage rates – which have jumped two percentage points since the end of last year – have the potential to cool Houston’s red-hot market and weed out some of the competition for the tight supply of homes . But any improvements for buyers are coming at a cost: hundreds of extra dollars in monthly payments.

First-time buyers Matt and Erica Hogan, for example, began looking for a home in January. By the time they found one in late March, after bidding and losing on three other properties, interest rates had risen a full percentage point to 4.8 percent. They are paying nearly $ 270 more a month to cover the mortgage for their townhome in the Rice Military neighborhood, but they still consider themselves lucky.

SEE THE DATA: Interactive map shows how Houston real estate prices have changed in your area

Average mortgage rates climbed again last week to an 11-year high of 5.11 percent, according to the government-sponsored mortgage finance company Freddie Mac.

“If it was right now – I don’t know if we would have purchased; I think we could have said, ‘Let’s hold off and wait until the market steadies,’ “said Erica Hogan, who is working with Kingshill | Martini Group at Compass. “Or we would have started looking at a lower budget.”

Cam Collins, a veteran Houston Realtor with eXp Realty, said he’s starting to see higher mortgage rates force buyers to lower their expectations. One of his clients, a roofer in Houston, put off purchasing a home last year for his growing family. Now, he probably can’t afford a home of the size he wanted.

“He’s going to have to settle,” Collins said. “His expectation of getting that nice, big four-bedroom for all his kids and his beautiful new bride at his income – the window has passed.”

The Houston housing market, like local markets across the country, has been on a tear, supported by low-interest rates, a strong job market, population growth and voracious demand outstripping supply. Home sales and prices hit records in each of the past two years; last month, the average home sale price in Houston surpassed $ 400,000 for the first time.

For sellers, the market has proven a bonanza. For buyers, not so much.

Katy Rivera, a teacher, last year decided she wanted to move back to Texas from Washington state to be closer to family. She came to stay with her parents, expecting it to take about a month to buy a home in Houston.

Seven months and six failed offers later, Rivera and her husband Moises finally landed a house in Sugar Land in January. Rivera thinks it was the personal letter she wrote to the sellers that helped seal the deal. She and her husband, who recently retired from the military, paid $ 476,000 – $ 6,000 above asking price – and bought it unseen sight.

“In this market, there were people that were waiving inspections, waiving all asks for fixes and upgrades, offering cash and offering over market,” said Rivera, 42. “So, we just felt like we were never going to get a house. ”

Since the Riveras locked in their mortgage at 2.9 percent, rates have done nothing but climb, rising in the first quarter at the fastest pace on record, according to Freddie Mac. A buyer seeking a $ 320,000 loan would pay about $ 350 more in monthly payments compared to the beginning of the year, assuming an average 30-year mortgage rate and a 20 percent down payment.

Escalating interest rates are almost certain to slow pace of sales and price appreciation, but how much and how fast will likely depend on how high rates move. Many economists forecast average mortgage rates will hang around 5 percent, assuming inflation moderates in the second half of the year.

Sellers still rule

While sellers still have the advantage, supported by a tight supply of homes, the market is showing signs of slowing. US home sales have decreased for two consecutive months, sliding by about 4.5 percent in March, according to the National Association of Realtors. Mortgage applications have fallen for 11 straight weeks, primarily due to a sharp decline in refinancing, according to the Mortgage Banker’s Association.

In Houston, pending sales – homes coming under contract – have fallen for four consecutive weeks, according to the Houston Association of Realtors. Showings have, too.

Nadia Evangelou, a senior economist at the National Association of Realtors, estimates that higher interest costs have cut about 10 percent of Houston households from the housing market, compared to about 13 percent nationally.

“If you’re a first-time homebuyer who doesn’t have a lot of cash, these are the hardest hit buyers,” said Justin Ahramjian, a senior loan officer with Mid America Mortgage in Houston. “I’m having to have a lot of hard conversations, especially with the people who qualified [for a mortgage] in the 2 to 3 percent interest rate range and didn’t get anything [they could buy] and now I’m having to tell them their mortgage payment is $ 300 more a month or sometimes more. ”

The National Association of Realtors estimates home sales will fall about 10 percent nationally this year. Houston, however, will likely see less of a decline because housing remains relatively affordable here.

Local real estate agents, however, still expect prices to keep rising and competition to remain stiff because of the lack of homes on the market. Housing inventories have slipped to 1.3 months, meaning all the homes on the market would sell out in little more than a month at the current pace of sales. A six-month supply is considered a balanced market.

James and Jessica Frazier – a couple in their early 30s looking for a home in Sugar Land in the $ 750,000 price range – say they check online listings about 30 times a day hoping the right home will pop up.

The Fraziers, working with Ron Jenkins of Realm Real Estate Professionals-Katy, have learned not to get too attached or anxious about any particular house.

“These cash buyers, they’re just scooping up everything,” said James Frazier. “This probably isn’t the market to be looking for your forever home, I’ll tell you that.”

Eye of beholder

The local market will also get support from people moving from pricier coastal markets to Houston, where the average home price of about $ 411,000 is considered a bargain, said Patrick Jankowski, an economist at the Greater Houston Partnership, a business-financed economic development group. A net 31,921 people moved here in 12-month period preceding July 2021.

Two of those newcomers are Paige and Andy Lujan, who moved from Los Angeles to Houston last year and rented a home in the Heights before finding their dream home in Garden Oaks, near where Paige Lujan is opening a new restaurant, Upside Pub. Lujan, working with Vikki Evans at Compass, said they would never have been able to afford a three-bedroom home in California.

“We decided to move Houston to start investing long-term in our lives and just have a good quality of life wise that we could afford,” said Lujan, 36. “Moving to Houston made a huge impact. We will never be able to afford a home of this caliber in Los Angeles. ”

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