Threat of higher mortgage costs is ramping up home sales

Worries about higher home finance costs are turning up the heat on Dallas’ blazing home market.

For the last few years, mortgage rates have been at some of the lowest levels on record — a big boost to home affordability.

And while no one is forecasting a big run-up in home loan interest rates, steady increases are expected through 2015 and into next year.

That’s enough to make some potential homebuyers antsy.

“That has created some urgency, and buyers are coming off the sidelines,” said Ted Wilson, principal at Dallas-based housing analyst Residential Strategies. “The job numbers for the last two months for this area have also been extremely strong.

“And we are seeing lots of relocation buyers.”

Last month, real estate agents sold more than 10,000 pre-owned single-family homes in North Texas — the most ever for one month.

They probably could have peddled even more properties if they had something to sell. The inventory of houses on the market is near rock bottom.

Increases in mortgage costs are a mixed bag for housing.

When interest rates start to rise, it often bumps up homebuying.

But higher finance costs mean fewer folks can afford to purchase a house. That’s especially true with Dallas home prices now at an all-time high.

“Rising mortgage rates are always a negative for buyers,” said Lawrence Yun, chief economist of the National Association of Realtors. “A sustained rise in rates will impact affordability and cut back homebuying.”

Yun is forecasting that long-term fixed mortgage rates could top 5 percent in the year ahead.

This week, a 30-year home loan averaged just over 4 percent nationwide.

Another worry with higher finance costs is that homeowners with rock-bottom mortgages will be reluctant to give them up.

Economists say homeowners who took out long-term loans when interest rates were at the lowest point in generations may decide to stay put in their properties and hang on to their bargain mortgages.

That’s bad news for a real estate market that’s already short of pre-owned houses to sell.

“Homeowners used to a certain monthly mortgage payment may balk at paying a higher amount per month in financing costs for a home roughly comparable to their current residence, to say nothing of a home that is more expensive,” Aaron Terrazas at Zillow warns. “For decades, homeowners haven’t had to worry about that.

“By this time next year, they’ll need to start.”

They’ve already started to plan for higher interest costs, if the latest sales numbers are any indication.

Source: Dallas Morning News