James F. Marquee and his girlfriend have lived in a rental home in Elmwood Village for about a year and are ready to buy their own home.
A 25-year-old college graduate in Buffalo has been looking for a three-bedroom home in Buffalo or Northtown since January. They have tried it three times, but recently last week they each hit a significantly higher price.
When they started the search five months ago, software consultants and occupational therapists were each told they could get a mortgage of up to $ 350,000 at just under 3%. Now he said, they’re looking at 6.75%-a difference of about $ 800 a month. So they have given up hunting for now.
“If the value of a home is well above what it should be and interest rates are high, you’re paying a ridiculous amount of money for your home,” said Marquee from Long Island. “It would have been a bad financial decision.”
Their experience may be a precursor to what comes to the still sizzling Buffalo Niagara housing market.
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Prices are still rising – for now
When there is competition between buyers, it pushes prices up to the rooftop – and that’s exactly what’s happening here.
Home sales and prices continue to break through record-breaking territory in western New York, but rising mortgage rates are beginning to give some homebuyers a reason to suspend or withdraw.
And it only gets worse, as higher potential monthly payments put a strain on the borrower’s wallet.
“Rising interest rates will probably cut prices for certain buyers,” said John Heflon, a realtor at Gurney Becker & Bourne. “Buyers in a particular price range will probably need to pay more attention to interest rates because they can afford to buy a home.”
The housing market has been weeping for several years as the combination of record low interest rates and record shortages of homes for sale has created a serious imbalance between supply and demand.
Mortgage borrowers are accustomed to rates from 3% to 4%, and in some cases even lower, making homes more affordable than ever. And they used it to raise house prices and desperately tried to defeat rival buyers who plunged into almost every available home as soon as it hit the market.
The Buffalo Niagara region was the second-lowest home sales market in 2020 to exceed $ 1 million in all major cities in the United States, according to a report from the Inspection Support Network.
But those eras are now slowly stalling, and skid marks may come next. Mortgage rates for 2015 and 30 have already risen by more than two points since January, and in some cases almost doubled, as the Federal Reserve accelerates campaigns to use economic brakes to prevent inflation. I am. horizon.
“I’m definitely seeing a big change. I’ve never seen such a change before,” said Howard Hannah’s TJ Miller, who owns two upholstery stores at Clarence and Niagara Falls. Told. “It’s an interesting dynamic that no one has ever seen. I think everyone just says it’s enough. We’ve all reached that point.”
According to Freddie Mac, a nationwide mortgage giant, the average interest rate on 30-year fixed-rate mortgages as of June 16 was 5.78%. This is up from about 3.3% in January. A $ 250,000 mortgage will add an additional $ 369 per month.
“Rising interest rates are undoubtedly more hesitant to buyers,” said Brian Hillary, an agent at Hunt Real Estate Corporation. Price range due to the amount of money their payments go up. “
Median home prices across the region rose 15% last year and 10% last year, but home ownership costs are rising rapidly.
Six months ago, anyone who wanted to pay less than $ 850 a month could have bought a $ 220,000 home with a 20% down payment. Today, if they want to stick to that payment, they’re capped at $ 196,000.
“Many people are so driven by that number that rising interest rates have to provide them with a painful amount,” said Jijiyankowski, an agent at Lancaster’s Nicol City Realty. “. One client paused the search and the other two soon stopped searching. “If it gets higher, they’ll lower their sales that they’ll look at, or they’ll take a step back.”
Fed watchers also expect mortgage rates to exceed 6% by the end of the year after the central bank has completed its largest series of rate hikes in 40 years, adding more quarterly points in the coming months. Will be even tougher as the Fed is expected to rise. ..
On top of that, the cost of groceries, utilities, gas, and almost everything else is high. This is a broader pullback recipe.
Howard Hannah’s agent, Vienna Laurendi, said, “Consumers need to start paying attention to what’s happening everywhere, not just mortgage rates. Living costs are rising day by day. But average income hasn’t followed suit. ” .. “Now, those who are forced to pay incredibly high amounts will not only have to fix at higher interest rates, but all their costs will go up.”
With fewer homes for sale than they were decades ago, competition among buyers is fierce, especially for homes in good condition in popular areas.
Indeed, recent sales activities have not reflected a slowdown so far. But that can change.
Sam Carter, Freddie Mac’s Chief Economist, said:
There are still many first-time homebuyers and other homebuyers chasing a small list and engaging in a bid war. As a result, the number of transactions has declined, but prices are still rising simply because there are not enough homes to meet demand.
“They certainly don’t seem to be delaying multiple offers or housing conflicts,” said Jerry Thompson, broker owner of the East Aurora Century 21 Gold Standard. “The offers may be a bit less. It may be 28 instead of 42. But I’m still seeing multiple offers and my home value is swelling.”
According to the latest data from the Buffalo Niagara Real Estate Agents Association, the average selling price in May was $ 235,000, up 15.5% from a year ago, but up 20.3% to $ 275,217. Buyers pay an average premium of 9.5% above the asking price, and homes pop out of the shelves just three weeks after they hit the market.
“The market is still very active and we are receiving multiple offers that exceed the asking price,” said Susan Lenahan, an agent at MJ Peterson.
Indeed, buyers are now in a hurry to land their dream homes and secure their mortgages before interest rates rise further.
In every well-maintained, well-designed home at a reasonable price, a horde of enthusiastic beavers looking for a new home will come down like a herd of wolves to outperform their rivals.
“In the last two weeks, we’ve found that buyers are willing to offer more to real estate as fear rates continue to rise and they make less money in the coming months,” Hannah’s agent said. , Dana David said: May. “There is an urgent need to list and buy now.”
As a result, agents say the impact of rate hikes is still undermined due to continued inventory shortages and insatiable demand.
“Despite the lack of housing and rising rents, that number still makes sense for buyers,” said Lenny Moran, broker owner of Reddoor Real Estate WNY in Elmwood Village. rice field. “I don’t think it will have a big impact on western New York.”
Nevertheless, concerns are beginning to emerge. David Weitzel, an agent at Re / MAX North, said one of his clients lost to another offer in a single-family home on Porter Avenue in Buffalo in May. For the same offer in January, the client’s monthly cost will be reduced by $ 426.
“Buyers are still offering, but high interest rates make things even more affordable,” he said.
Mortgage rates are rising, inflation is skyrocketing, and soaring gas prices are squeezing budgets already facing affordable prices from the steady rise in home prices over the past few years. increase.
After months of surpassing transactions one after another, buyers are exhausted.
“They are frustrated. They are supposed to rent or stay at their current location because of the higher prices,” McNicol said. “So, before it gets better, I expect it to just get worse. The buyer pool will go down.”
This slows down the pace of sales.
“Houses won’t sell as fast as the last two years,” Hillery said.
“We have finally reached the peak of the value of our homes,” Hillery said.
But veteran realtors aren’t worried. The new rates are just back to what the market was facing 20 years ago. And they are far from the rampant inflation of the 1980s.
“I sold my house back when interest rates were 17% and 18%, so I sold it back earlier,” Lenahan said.
In fact, Miller, who started real estate at the age of 18, still remembers being excited to get a 17.5% interest rate on his first mortgage.
“I thought we got a lot,” he said. “So it’s strange how the idea of numbers changed.”