by Fred Seely
Editorial Director
The Federal Reserve’s rise in interest rates was greeted in this area with doubts that home sales would be affected.
“First, just because the Feds raise their rate does not necessarily mean mortgage rates will increase,” said Gene Jones of ERA Dan Jones. “Even if they do go up, it will be just a little at a time. We have enjoyed years of the best rates in over 40 years, both us in the real estate business as well as the consumer, so if rates on a 30-year mortgage go to 6.5-7 percent, I don’t believe it will have a great impact.
“I remember closing on a house I sold with a rate of 15.5 percent 1 year ARM with 7 discount points! Therefore, those who don’t remember those times may not realize how blessed they are!”
He was one of many responding to a Realty/Builder Connection survey asking if the increase in interest rates that the Fed charges banks would trickle down in an adverse way to the real estate and construction industries.
“The rate that was changed is the rate banks charge each other to lend money overnight,” said Wendie Mayfield, Watson’s regional vice president. “This rate change has already been priced into the mortgage backed securities that our mortgage rates are based upon, so we shouldn’t see any radical change in these rates. Besides, if you take a long range look at these rates, they are very consumer friendly! I’ve been in the business over 20 years...anything under double digits is great!”
“This real estate market has been ‘spoiled’ with the best interest rates in 50 years,” said Watson’s Paul Gruenther. “As a result, we’ve have a very strong seller’s market all year. In almost every price range, anything decent and priced at the market sells quickly.
“At most, I would expect to see a short-term ‘flutter’ in market activity. In the end, this might only work to increase home inventories. Healthy buying and borrowing will continue.”
“I believe the rates won’t hurt much,” said Diane Ward of Century 21 A1A Realty. “People are still going to move to Florida. Families are growing. People still move for many reasons. They still need our professional help.”
The rate should have an extra short-term benefit, too.
“It encourages people to make a move,” said Linda Sherrer, president and CEO of Prudential Network Realty. “It’s kind of been like waiting for the other shoe to drop. Everyone has been waiting to see when it was going to move. Everyone knows the economy has flourished and we’ve had three consecutive months of employment in the plus side, actually substantially in the plus side. So, even though you have steel, gas prices and concrete that are a little troublesome, you still have jobs.
“Real estate has been the economic engine that has pulled the U.S. out of the recession, so we can take a bow for that. It’s been wonderful to experience that. What happens when the rate changes is that people that have been waiting say ‘Wow, I better get off the dime and make a move and go ahead and purchase!’ So, there is a little bit of panic buying if you will or a little bit of ‘Oh, the jig’s up. I’d better start doing something’ whether it is an investment or a personal home.
“Also, it’s important to note that with every quarter of a percent increase, it knocks out roughly 225,000 people nationwide. So, truly, there are people who can’t qualify when the rate goes up. However, with the unbelievable favorable financing that we have out there, it’s hard not to be able to afford a house unless you have really damaged credit. Homeownership is the highest it’s ever been, 69 percent. It will probably top 70 percent this year.”
Veteran mortgage broker David Wakefield added, “Personally, I don’t think it will have much of an impact. The ‘cost of money’ will go up slightly, but I don’t think it will slow much down. It may even get some people off the fence and convince them to make a move!”
“Interest rates are still very favorable,” said Ed Forman, Watson’s general manager and vice president of operations.”The slight increase is a strong reminder to all who are considering purchasing a home in the next 12 months to do so now. We expect the real estate market to continue to be very strong with excellent appreciation as we have experienced over the past several years. This is still the best real estate market I’ve experienced in my 32 years in the business.”
More positive talk came from SouthTrust’s Jacqueline Parrillo.
“My feeling are that we will still have a strong year in the purchase market,” she said. “This will slow down the refinance clients but, since rates are in the 6’s, we haven’t seen a lot of refinances in the last couple of months.
“There are always alternatives with variable rates, interest only programs. I have been in the Jacksonville/St. Augustine market for 25 years and we have been blessed with wonderful market conditions.
“I would be more worried over a natural disaster then the rates going up to hurt our market area. We have seen gas shortages, inflation, wars, hurricanes, job loss, bank merges (I’ve been through five). We are a hardy bunch and, with our can-do attitude, we’ll be fine.”
Julie Humphress, the marketing director at D.R. Horton, remembers the old days.
“Those of us who have been in the business can remember double digit interest rates and also remember that we still sold homes.” she said. “We looked at creative financing and found ways to get people the home of their dreams. When interest rates plummeted, those with high interest rates refinanced and today have homes that have appreciated significantly.
“Will history repeat itself? It might. One thing is for sure — the American Dream of home ownership is alive and well.”
Added Reiss Tatum, president of RTR Associates: “If the rate increase is small, I think the effect will be hardly noticeable. Future increases, even small ones, however, will have a cumulative effect and over time will cool things off a bit. Numbers of units may not drop so much as will price per unit as buyers adjust to keep monthly payments in line.”
“The biggest problem that we have not had for a couple of years is that of the unknown, particularly when it comes to the sale of new homes,” said Gay Bonner of Prosperity Bank. “What will the interest rate be when my new home is finished?
“In the last two years, it was not really a concern because rates were on the decline. In today’s market, a rate of 6.5 percent is considered to be a high rate. In reality, 6.5 percent should be considered a good rate.
“When people say a ‘high’ rate, I think 10 percent — I have been around long enough to remember rates at 14 percent!
“It will be a matter of acceptance by the general public and that will take time. The reality is that the 5 percent money is gone if you are talking about a fixed rate mortgage. It was great while it lasted because it generated a lot of work in this industry and allowed people to qualify for more house than normal.
“People are still going to buy houses and get mortgages because it is the best investment a person can make in their future. They will grumble about the rate only for a while.”
Another positive came from Kathy White of the Re/Max Professional Group, Fernandina Beach: “An increase in interest rates in the general real estate market can create a ‘flurry’ of sales among those who have been ‘waiting’...in the new home sales the buyers will probably put in fewer options so they can still have a new home!”
The property management said has another reason to like the move. According to Wayne M. Jones, property manager of the BancGroup Mortgage Corp., said, “Low interest rates take tenants with good credit out of the tenant pool, due to (home) purchases, leaving us (a pool of) tenants with less than perfect credit and rental partnerships.
“The higher the rates go, the fewer can qualify to purchase which enhances the rental market. Low interest rates have also created investor purchases which has created an abundance of inventory for fewer tenants in market.”
Sales and Marketing Council President Bob Hawley summed it up with:
“I really do not feel that a 1/4 percent rate hike is going to mean a difference if someone buys or does not buy. In some areas of Northeast Florida, we have seen a slowdown in traffic of buyers of both resale and new construction.
“I feel that some of the recent slowdown is do in part because so many people got into resale and new homes during the period of extremely low mortgage rates.
“For the time being, I do not feel that a slight rate hike will negatively impact the new housing market. After all, people bought when rates were 17 percent!”