When the Federal Reserve Bank announced in May that continued improvement in the economy would mean it would start tapering down its bond purchases this fall, Wall Street responded with a jerk – and a spike in interest rates, with the 30-year-fixed rising almost a point and a half in the past few months.
Last week, however when just about every economist and Fed watcher on either side of the Potomac expected the bank to start the long-anticipated taper, the Fed threw a curveball, declaring that its $85 billion bond purchase program would remain in place. A series of lousy jobs reports and fears that a deadlocked Congress will shut down the federal government next month (or worse, default on U.S. debt) prompted the move, the Fed said.With the Fed having decided to keep the party going for now, it may even be possible that rates will dip again in the near future. For now, the only certainty seems to be continued volatility. With roiling rates making buyers skittish, many expect the hot Boston-area market – August sales broke records set in 2006 – to cool down during the remainder of the year. Banker and Tradesman spoke to several industry participants to get some perspective on how the recent rate hike and continued volatility is affecting the industry, and how it’s affecting their own approach to their clients and the employees.
Brian Cavanaugh, senior mortgage banker, Residential Mortgage Services, Inc.
I think home affordability has taken a hit over the past six months. When mortgage rates go up 0.75 percent, your proposed monthly payment can go up almost 10 percent depending on the mortgage product. We certainly have gotten, and will continue to get, some relief with the Fed keeping the policy change on hold for now. Interest rates should stay low for a longer period of time, and purchasing power and refinancing opportunities will remain strong. It’s a great thing for mortgage buyers, [but] a pre-approval is more important than ever.
Sam Schneiderman, president of the Massachusetts Assoc. of Buyer Agents and owner, Greater Boston Home Team
All of our clients, when the rates start to go up, are notified that they may need to reconsider their situation. When we start to get in to that three-eighths to a half [-point] range, especially with our clients that are on the edge, we have that conversation. We try to bring their expectations down slightly. That’s the bad news – but I tell people, the good news is, your competition is also eroded. So with a little bit of luck, you might have some more options. Overall, I think [the rate hikes] are pushing the market.
Anthony LaMacchia, co-broker-owner of McGeough LaMacchia Realty Inc.
I have been saying for months that it is impossible for higher rates not to have some negative impact on the market due to it decreasing affordability for buyers. Those who could afford, say $400,000 in April can only afford $350,000 now. That does put negative pressure on pricing. Now, I don’t think prices will go down, but they are not rising like they were in the spring. Sellers need to be aware of this and take it into account when pricing.
Jerami A. Marshal, senior vice president for Warehouse Lending, Sovereign/Santander Bank and chair of the Massachusetts Mortgage Bankers Association
The sudden change in interest rates is not foreign to the seasoned mortgage lender. Lenders that were not previously focused on purchase loan business will be challenged to compete on a level playing field with those lenders that continually supported their Realtor affiliates during the refi boom … the forward-thinking companies are attracting proven mortgage loan officers and expanding the lending efforts. [Conversely,] the less-prepared mortgage lender has reached a fork in the road. They must choose between becoming part of a larger lender or compress to a much smaller sized company than they once were. Unfortunately, each road may lead to a very rough and bumpy ride.
Angela Harkins, broker/owner of Angela Harkins & Assoc. Real Estate in Westford
It’s not taking longer to close deals, although it is tougher to get to the closing table as buyer and sellers waltz around the transition from a buyer’s market to a seller’s market. [But] as interest rates climb, I see buyers getting a little more anxious about finding a home. My advice to sellers is not to wait to put their homes on the market. Many sellers think that waiting until the spring market will bring them more buyers. What they don’t think about is that while the spring does bring out more buyers, it also brings out more competition. Right now there is little supply and lower rates equating to higher home prices and faster sales. There are buyers in the market now with very few choices in the market.
Carol Bulman, CEO of South Shore-based Jack Conway Co. Inc.
We are constantly training our agents on the market conditions, and providing them information on how to message this to their clients. For the last several months the topics have centered around interest rates and financing. Our agents are armed with data to pass along to clients explaining the effect each rate increase has on buying power. Clients should not only factor possible rate increases, but the price increases we are seeing. It is still a very good time to buy, because those prices haven’t risen sharply. But we expect continued improvement into 2014, and for now housing is still very affordable … While some pockets of our trading area exhibited a slower period through the early summer, we felt it was only moderately impacted by rates. We don’t think this will have a huge impact through 2013.
