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Brian Mozley has seen firsthand how rising mortgage rates have hit the local homebuying economy.
Mozley, owner of local lending firm Financial Mortgage Solutions, worked with one couple last year on a pre-approval for a loan they planned on using to build a new home. But supply chain issues hampered the buildout of the house.
By the time it was nearly completed in May, interest rates jumped to more than 5%.
“We had to get real creative,” Mozley said. “We were able to get it fixed for them and get them in the house.”
The issues the couple faced with rising mortgage rates have been felt by many – and they aren’t showing signs of deterring as the country faces the rise of inflation.
The 30-year fixed mortgage rate – the standard measurement in the homebuying economy – stood at 5.7% at the end of June, according to Freddie Mac, a government-sponsored home mortgage company. Just six months ago, in January, the rate stood slightly above 3%.
In New Mexico, those increases and other market forces have created an environment that is pricing out first-time homebuyers.
Bidding wars are becoming commonplace.
And skyrocketing interest rates are causing a nearly 30% increase on monthly mortgage payments, Alan Fowler, the senior vice president of mortgage services for Nusenda Credit Union, told the Journal.
“With COVID, because of all the things that happened, the Fed’s artificially lowered interest rates,” Fowler said. “… We also had some pretty sizable federal spending programs that we didn’t necessarily have the money for. So, in essence, what we did was we printed that money, and that has to work its way through the system eventually – and it’s starting to work its way through the system now as increased inflation.”
Locally, rising mortgage rates have come against the backdrop of rising home prices.
A report from the New Mexico Association of Realtors shows that the median home price in the state stood at $318,000 in May – a nearly 18% increase year over year and an increase of 3.16% from the previous month.
Local real estate experts say an influx of corporations and out-of-staters flocking to New Mexico since the onset of the pandemic has contributed to the volatile market. And it doesn’t help that the inventory of homes around the state has remained low.
“I can’t tell you how many clients we see that … (are) selling their three-bedroom, two-bath house that’s 1,400 square feet for a million bucks plus (in other states), and then they’re coming out here and they’re buying a really nice house, all cash,” Mozley said.
Fowler, who has had more than 40 years of mortgage lending experience, said a healthy market has an annual increase for home prices between 4% and 6%. In New Mexico, the year over year increase for May stood at 17.7%.
“We’ve had a really low cost of living, you know, generations and we’re going to see, unfortunately, that cost of living increase across the board,” said Damon Maddox, president of the New Mexico Association of Realtors. “Housing prices (are) going up, rent’s going up, which means everything else is going to go up.”
To put those increases into perspective, a single-family detached home had a median sales price of $290,000 in the Albuquerque area May of last year; the median sales price in May stood at $340,500, according to GAAR.
The stark increase in home prices was a long time coming, Fowler said, as New Mexico’s home prices stayed considerably lower even after the financial crisis more than a decade ago.
“These big increases in Albuquerque really have only caught us up to where our long-term average should be,” he said.
While bidding wars – and by extension, paying over asking price – has become somewhat of a common theme in New Mexico’s homebuying market, the interest rates may help “plateau” that trend of homes selling in the blink of an eye.
“I would call it more of a correction in the market,” Maddox said. “Interest rates will rise, but hopefully not too much more.”
Don’t hedge your bet on home prices decreasing, local experts agreed – and don’t expect mortgage rates to drop down to the historic lows of yesteryear.
“I think that we’re probably just looking at a newer level of expense when it comes to housing right now, which is unfortunate,” Mozley said.