Interest rates are starting to cool Fort Worth’s hot housing market. Will prices fall?
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Interest rates are starting to cool Fort Worth’s hot housing market
Are we in a bubble? When will prices go down? Should I wait? Real estate agents and researchers weigh in on some burning questions about Fort Worth’s housing market.
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High prices and increasing interest rates are starting to cool the nation’s housing market, but don’t expect to see a big price drop in the Fort Worth area.
Nationally, there are signs that increases in mortgage rates, up more than two percentage points since January, are keeping buyers away and forcing some sellers to lower their prices.
Heather McWilliams and her husband didn’t have to get a house right away, but locking in the low interest rate from a pre-approved mortgage was important to them. The two had worked hard to pay down debt and improve their credit to be in the best financial position possible to buy a home.
The couple opted to buy a smaller house in Haskell after looking three months for a house close to family in Graham.
“It may not be our forever home, but it’s definitely right for us in the chapter of our lives we’re in right now,” McWilliams said.
Housing starts were down about 8% in May compared to 2021, according to the U.S. Census Bureau. Roughly 20% of home sellers dropped their prices in May, and 13% fewer people searched for “homes for sale” on Google, according to a report from real estate brokerage Redfin.
But in Fort Worth prices soared 24.8% percent in May, indicating that North Texas’ low supply can’t meet a demand fueled by surging population growth.
“We’re not in a bubble situation,” said Shelby Kimball, a Fort Worth real estate agent.
Agents in Kimball’s office reported getting five or 10 offers on a house that would have fetched 10 or 20 a few months ago.
“But the houses are still selling,” he said.
Kimball and other agents in Fort Worth expect prices to steady as rising interest rates push payments out of reach for more families.
The average interest rate for a 30-year mortgage was 3.22% on Jan. 6, according to federal home loan company Freddie Mac. By mid-June, it jumped up to 5.78%.
That means payments on a $350,000 mortgage increased from $1,517 per month to $2,049.
An increase in the cost of borrowing means some potential home buyers are going to drop out of the market, said Adam Perdue, an economist at Texas A&M’s Real Estate Research Center.
He predicted the drop in demand will result in home values still increasing, but at a more normal 3% to 4% annual rate.
Slowing not stopping
Growth in home prices will slow but not stop, Perdue said.
He pointed to a backlog of houses under construction delayed by supply chain issues.
In May, roughly 822,000 homes were under construction nationally in according to the Census Bureau. That’s the highest since November 2006.
Once those houses start coming onto the market, the increased stock combined with higher interest rates should slow rapid price growth, Perdue said.
The supply of homes in Fort Worth went up in slightly in May, according to a report of the Greater Fort Worth Association of Realtors.
“It’s a change in the right direction, but not really significant yet in my opinion,” wrote Kimball in a text message. He noted the supply of homes typically goes up in the Spring and Summer.
Perdue doesn’t expect a 2008-style housing crash.
Unlike in 2008, the COVID-19 pandemic allowed home owners to lock in historically low interest rates, meaning their housing payments will stay relatively low, he said.
Also, it’s a lot harder for homeowners to find a similar-sized house to rent if their house payments get too expensive, Perdue said.
In 2008, the relatively low cost of rent compared to mortgage payments led some homeowners to sell their homes or strategically default to avoid higher payments, he said.
Don’t wait for home prices to fall
Trying to wait out the housing market in hopes that prices will fall is a weak strategy, said Patty Williamson, a real estate agent in Fort Worth.
“The lack of inventory is what’s driving the prices up and up, and our inventory has not relaxed very much,” Williamson said.
An experienced Realtor can help buyers craft their offers to make them more attractive to home sellers, she said.
One option she offered is an appraisal waiver in which home lenders forgo an in-person appraisal in favor of historic sales data. This can speed up the closing process, making you more attractive to the seller.
Kimball advised buyers to be flexible in their housing searches. They might have to move farther from central Fort Worth or find a slightly smaller house than what they originally envisioned.
To offset rising rates, Kimball advised buyers to do what they can to increase their down payment. A larger down payment lowers your monthly housing costs and makes you more attractive to prospective sellers, he said.
At the same time, he acknowledged this may not be an option for everyone.
He said buyers who were able to save by living at home with their parents during the pandemic or those who are able to get help from family with a down payment are going to make out better in this market.
The hit to first-time and low-income buyers
Low- to moderate-income and first-time home buyers are being hit hardest by rising interest rates.
Trinity Habitat for Humanity, a nonprofit that helps moderate and low-income residents become home owners, has seen a 50% uptick in requests for assistance due to a combination of the lack of affordable housing and the recent spike in interest rates, wrote Lydia Traina, Trinity Habitat’s development and public relations director, in an email to the Star-Telegram.
She wrote she has had clients at Habitat who qualified for a loan one day only to be disqualified two days later when rates spiked.
“Basically people that are getting mortgages can’t afford to get as large of a loan as they did before,” Perdue said.
In January, those earning Fort Worth’s median household income of $64,567 could qualify for a $298,300 home, assuming no down payment and no other monthly debt. By mid June, that number dropped to $241,700 as interest rates jumped up from 3.22% to 5.78%.
The city of Fort Worth’s federally funded Homebuyer Assistance Program, which can provide eligible residents up to $20,000 for a down payment, has run into roadblocks because of the high prices.
The federal requirements limit prices for existing homes at $239,000 and new construction at $252,000. The median price in Fort Worth was $367,000 in May, according to the Greater Fort Worth Association of Realtors.
“Homes are not available due to the low housing stock within the price range, and if they are found, then they are swallowed up quickly by investors,” wrote Rhonda Hinz, senior administrative service manager with the city’s neighborhood services department.
An estimated 52% of homes purchased in Tarrant County in 2021 were bought by investors, according to a report from the National Association of Realtors. Texas led the country with investors buying 28% of all homes in 2021.
The report found investors typically paid 26% less than the state’s median home price, however, home prices were higher in states with with more investor purchases.
This story was originally published June 17, 2022 at 5:00 AM.
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