Realtors say well-priced homes are moving fast

Despite expectations, rates drift lower

01/26/2016

Realtors say well-priced homes are moving fast

Just about everybody expected the cost of home loans to be higher by now. But despite the Federal Reserve Board’s move in mid-December to nudge up short-term interest rates, mortgage rates have drifted down a tad. With the annual interest charged on 30-year, fixed-rate loans less than 4% APR last week, North Shore Bank Senior Vice President Michael Kellman had a one-word description for the current rate environment: “Crazy.” 

Drew Wallach, the bank’s chief financial officer, says simply, “It’s an interesting moment.” When his Millennial daughter asked what he would recommend to people her age who are thinking of buying a home, he adds, “My suggestion was to lock in a loan as soon as possible, because rates are still very likely to rise.”

Wallach’s daughter and her peers have plenty of company if they’re in the market now. Area Realtors say the “spring” market began before the holiday decorations were down. Homes priced at less than $400,000 are going fast. The only problem, they say, is that there aren’t enough of them on the market.

“It’s an earlier spring market than normal,” said Colleen Prostek, an agent with Realty Executives Integrity in Whitefish Bay. “We’re seeing showings picking up and we’re starting to see offers coming in. People may be getting into the market sooner in anticipation of interest rates going up. 

“The expectation is that there will not be a big increase in the value of homes because we haven’t seen the income growth that would support higher prices,” she added. “But we still foresee another strong market this year.”

The quarterly North Shore Bank/GMAR Home Affordability Report shows prices and monthly payments continued to trend modestly higher in the final months of 2015. Still, monthly home payments -- including principal, interest and taxes – are as low as or lower than rent payments in many parts of the metro area.

Longtime agent Jeff Lien, who focuses on the Waukesha County market for First Weber, said his team is seeing the busiest January in five or six years. “People are finally feeling more confident about the economy,” he said. “The fact that the winter has been mostly mild also helps. People started getting the bug earlier.” 

Most of the activity is focused on what he terms “the affordable market” – homes priced at $400,000 or less. “It’s a good market in general, but if I’m selling an $800,000 house in Brookfield, it’s probably going to take quite a while. If it’s a $300,000 home in Wauwatosa, it’s probably going to get multiple offers. The affordable market is very fast-paced because there’s a shortage of supply.”

First Weber agent Curt Downes said people regularly ask him when they should put their home on the market. “I always tell them if it’s a mild winter, the spring market starts January 1. Right now, inventory is low. I wrote two offers this week and both buyers were competing for the house. Sellers who list soon are likely to draw lots of interest if their home is priced correctly.”

Lien agreed. “Sellers with homes in the right price range should come to the market now. Don’t wait until March. I wouldn’t say the sales have spiked yet but there’s a lot of activity. Except in unique situations or in the case of high-end homes, if you’re a seller, don’t wait.” 

He added one caveat: “When you do come to the market, use good analysis for pricing your home. Even in a busy market, if your home is not priced right, you won’t sell. Consumers are very well educated and they know when a house is overpriced.”

Realty Executives’ Prostek said the industry expects to see a pick-up in the Millennial market segment. “They’ve been struggling to get themselves in a position to buy, but the sense is that that’s going to start to happen. The rents are so high right now that first-time homebuyers can often own for less than it costs to rent,” she said.

That brings us back to Drew Wallach’s advice to his daughter. For first-time buyers who don’t expect to own their first home for more than five years and want to keep the monthly payment as low as possible, he suggested a five-year adjustable-rate mortgage (ARM) amortized over 30 years. With today’s low rates and limits on future increases, it’s a very attractive option for some. For those who expect to stay put, a longer-term, fixed-rate loan is apt to be the best bet. 

Among borrowers who are looking toward retirement, Wallach sees interest in 10- and 15-year, fixed-rate mortgages that are amortized (in other words, structured to be fully paid off) over the loan term. For those who can afford a larger monthly payment, three factors make these shorter-term loans appealing: Lower interest rates, the huge interest savings gained by compressing the payoff schedule, and the fact their home will be mortgage-free in a relatively short time.

Theresa O’Malley, a North Shore Bank mortgage originator, said the bank continues to see interest in refinancing existing debt at more favorable interest rates. “Whether they’re paying off higher-rate credit card debt, rolling a home equity loan into a new mortgage, or just refinancing an existing, more expensive mortgage, there are still people out there who are looking to lock in today’s low rates,” she said.

While O’Malley expects mortgage lending to pick up significantly over the next 
several months, “We feel like it’s always home loan season here,” she said. 

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