James F. Markey and his girlfriend have been living in a rented house in the Elmwood Village for about a year, but they’re ready to buy a home of their own.
The couple, both 25-year-old University at Buffalo graduates, have been looking since January for a three-bedroom house in Buffalo or the Northtowns. They tried three times, but were significantly outbid on each one, most recently last week.
When they started their search five months ago, the software consultant and occupational therapist, respectively, were told they could get a mortgage of up to $ 350,000 for just under 3%. Now, he said, they’re looking at 6.75% – a difference of nearly $ 800 per month. So they’re abandoning the hunt for now.
“When home values are significantly inflated over what they should be, and interest rates are high, you end up paying a ridiculous amount for a home,” said Markey, a Long Island native. “It would have been a bad financial decision.”
Their experience may be a harbinger of things to come for the still sizzling Buffalo Niagara housing market.
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Prices still rising – for now
When there’s competition among buyers, it pushes prices through the roof – and that’s exactly what’s happening here.
Home sales and prices continue to blast through record territory in Western New York, but rising mortgage rates are starting to give some homebuyers reason to pause or even pull back.
And it is only going to get worse as higher potential monthly payments put a crimp on borrowers’ wallets.
“The rise in interest rates is probably going to price out certain buyers,” said John Heffron, a real estate agent with Gurney Becker & Bourne. “Buyers in a certain price range are probably going to have to pay attention to the interest rate a lot more closely to afford a home. “
The housing market has been on a tear for several years, as a combination of record low interest rates and a record shortage of homes for sale have caused a severe imbalance between demand and supply.
Mortgage borrowers have become accustomed to rates of 3% to 4% – sometimes even lower – that have granted them far more purchasing power on a house than ever before. And they’ve used that to bid up home prices in an often desperate attempt to beat out rival buyers that swoop down on almost every available house as soon as it hits the market.
According to a report by Inspection Support Network, the Buffalo Niagara region had the second fewest home sales topping $ 1 million in 2020 out of all large US cities.
But those days are now coming to a gradual halt, with skid marks potentially coming next. As the Federal Reserve accelerates its campaign to tap the economic brakes and prevent inflation, interest rates on both 15- and 30-year mortgages have already risen by more than two points since January – nearly doubling in some cases – with indications of more on the horizon.
“I’m definitely seeing a huge shift. I’ve never seen a shift like this before,” said TJ Miller of Howard Hanna, who also owns two home decor stores in Clarence and Niagara Falls. “It’s an interesting dynamic that no one I think everyone is just saying enough is enough. We’re all getting to that point. “
A 30-year fixed-rate mortgage averaged 5.78% interest as of June 16, according to national mortgage giant Freddie Mac. That’s up from about 3.3% in January. On a $ 250,000 mortgage, that’s an extra $ 369 per month.
“The increase in interest rates definitely are making buyers more hesitant,” said Brian Hillery, an agent at Hunt Real Estate Corp. “I have seen buyers that have stopped their search. I’ve had buyers that have to consider looking at a different.” price range because of the amount their payment will be going up. “
With the median home price across the region rising by 15% last year – and by 10% the year before – the costs of owning a home are rising rapidly.
Six months ago, someone who wanted to pay no more than $ 850 per month could have afforded a $ 220,000 home, with a 20% down payment. Today, they’re capped at $ 196,000 if they want to stick to that payment.
“A lot of people are very driven by that number, and they’ve had to offer so much more that the increased interest rate is nerve-wracking to them,” said Gigi Jankowski, an agent at Nichol City Realty in Lancaster, who has had one client suspend their search, while two others are on the verge. “I think if it goes much higher, they’ll either lower their sale amount that they’ll look in, or they’ll take a step back.”
And with further quarter-point hikes expected in coming months, it will get even tighter, as Fed watchers anticipate mortgage rates to exceed 6% by year-end, after the central bank finishes what could be its biggest series of rate increases in 40 years ..
Add to that the higher expenses for most everything else – groceries, utilities and gas – and it is a recipe for a broader pullback.
“Consumers at large need to start paying attention to what’s happening with everything, everywhere, not just mortgage interest rates. The cost of living is increasing daily, yet our average income is not following suit,” said Vienna Laurendi, an agent at Howard Hanna “The people forced to pay incredibly high numbers now are not only going to have to lock in with a higher interest rate, but all of their expenses are going to go up.”
With homes for sale scarcer than they’ve been in decades, the competition among buyers, especially for homes in good condition in sought-after neighborhoods, has been intense.
To be sure, recent sales activity doesn’t reflect any slowdown, so far. But that could change.
“Homebuyers continue to show resilience, even though rising mortgage rates are causing monthly payments to increase by about one-third, as compared to a year ago,” said Sam Khater, chief economist for Freddie Mac.
So while the number of deals has fallen – simply because there aren’t enough homes to even meet the demand – prices have still soared.
“They certainly don’t seem to be slowing multiple offers or the fights for houses,” said Jerry Thompson, broker-owner of Century 21 Gold Standard in East Aurora. “Maybe there’s a few less offers. Maybe, instead of 42, it’s 28. But right now I’m still seeing multiple offers, and I’m still seeing home values inflate. “
The median sales price of $ 235,000 rose 15.5% in May from a year ago, while the average was up 20.3% to $ 275,217, according to the latest data from the Buffalo Niagara Association of Realtors. Buyers are paying a 9.5% premium over the asking price , on average, and homes are flying off the shelf after just three weeks on the market.
“The market is still very active and still getting multiple offers over the asking price,” said MJ Peterson agent Susan Lenahan, who recently saw five offers on a house in the $ 600,000 range.
Indeed, buyers are now rushing to land their dream homes and lock in a mortgage before rates rise even more.
For every home that is priced right, well-maintained and staged nicely, a horde of eager beavers looking for their new home descend like a pack of wolves to try to outdo their rivals.
“Over the past two weeks, I’ve noticed buyers willing to offer more on a property because of the fear rates are going to continue to rise and they will get less for their money in the upcoming months,” Hanna agent Dana David said in May. “There is an urgency to list and buy right now.”
As a result, agents say the impact of rate hikes is still muted – for now – because of the continued inventory shortage and the insatiable demand.
“We have a housing shortage, and with rents rising, the numbers still make sense to buyers,” said Renee Moran, broker-owner of Red Door Real Estate WNY in the Elmwood Village. “I don’t think we will see a big impact in Western New York. “
Still, the concern is starting to show. David Weitzel, an agent with Re / MAX North, said one of his clients lost out in May to other offers on a single-family home on Porter Avenue in Buffalo. The same offer in January would have cost his client $ 426 less per month.
“Buyers are still making offers, but higher interest rates are making things even more unaffordable,” he said.
Mortgage rates are rising, inflation is spiking and soaring gas prices are squeezing budgets that already face affordability issues from the steady rise in home prices over the last few years.
Buyers are also worn out, after months of being outbid on one deal after another.
“They’re frustrated. They’re turning to renting or staying where they’re at, because the rates are going to go up,” McNichol said. “So I anticipate it’s just going to get worse before it gets better. The buyer pool will come down. “
With it, the pace of sales will slow.
“Homes won’t be selling as quickly as they were for the last two years,” Hillery said.
“We’ve finally reached the peak of the homes rising in value,” Hillery said.
And they’re a far cry from the rampant inflation of the 1980s. And they’re a far cry from the rampant inflation of the 1980s. And they’re a far cry from the rampant inflation of the 1980s.
“I sold houses back when interest rates were 17% and 18%, so it has been done before,” Lenahan said.
In fact, Miller – who started in real estate when he was 18 – still remembers being excited to get a 17.5% rate on his first mortgage.
“We thought we got a great deal,” he said. “So it’s funny how the mentality in numbers has changed.”