Higher mortgage rates spark home buying

Rates climbing: But real estate professionals say they are still attractive

Mortgage rates are on the rise with no end in sight, a trend that is resulting in an uptick in homebuying to beat the increases, local real estate agents say.

New federal regulations that make it tougher to get a loan, combined with an improving economy, which prompted the Federal Reserve to scale back its bond-buying strategy that is helping to bolster growth, are all contributing to the increase in mortgage rates, said Carlie Ferraro,  president of William Raveis Mortgage in Shelton.

Mortgage rates "have started to go up, and in all likelihood they'll continue to go up," he said, commenting that the typical 30-year fixed-rate mortgage interest rate is in the mid-to-high 4 percent range, compared with the low 4-percent range a month ago. "The government has overreacted, and it could tamp down the market."

One of the goals of the federal government through the process is to encourage more private lenders to increase their mortgage velocity by taking advantage of the increased rates and reduce the pressure on government mortgage programs, according to Ferraro.

Despite the rising interest rates, Ferraro, whose parent company is William Raveis Real Estate, said it's a good time to buy a house because the rates will probably go higher, and the house-buying market is normally slow this time of year.

To qualify for a conventional mortgage and meet the federal qualified residential mortgage standards, home buyers are going to have to improve their credit scores, he said.

"Make sure your credit is as pristine as you can make it. You should try to get your credit score up into the 700s," Ferraro said.

Spoiled buyers

Those who have a solid credit score and a down payment have been reacting to climbing interest rates by shopping for a home, said Scott Cooney, president of ERA Goodfellow Homes in Danbury, referring to projections by various lending organizations -- all showing that 2014 rates will rise.

Commenting that the interest rate for a 30-year fixed mortgage is in the 4.3 percent range, he cited Fannie Mae projections that the rate will be in the 4.8 percent range by the fourth quarter.

Freddie Mac sees the 30-year fixed rate in the 5 percent range, while theNational Association of Realtors and Mortgage Brokers Association both project a 5.3 percent rate.

"We're seeing a sense of urgency from our buyers -- to buy something right away," Cooney said, commenting that projected rates are still far lower than in the past and home buyers have been spoiled by super-low rates. "In 1989, when I bought my first house the interest rate was 13.2 percent."

He estimated that the difference between a $250,000, 30-year fixed mortgage at 4.3 percent and one offered at 5.3 percent would be $150 per month.

Under $1 million in Greenwich?

Mark Pruner, an agent with Berkshire Hathaway Home Services, in Greenwich, is seeing much the same reaction by buyers searching for homes below $1 million in that upscale community.

"I have a listing in Old Greenwich for $598,000. It's been shown 20 times in the past 10 days. I'm seeing with homes below $1 million that there is a lot of activity," Pruner said, but a jump in mortgage rates could put a financial burden on some home buyers.

Pruner has not had any takers yet for the Old Greenwich house, saying it needs work and is close to a busy street.

"Young buyers want something that they can move into. I had a house at Pemberwick (a Greenwich neighborhood), and it went under contract in a couple of weeks, he said.

Rising interest rates and a paucity of homes on the market in Greenwich are combining for a hot market, said Pruner, estimating there are 400 homes for sale in the town.

Despite the rising mortgage interest rates, high income earners are looking for ways to re-balance their income portfolios and shopping for high-end, multi-million-dollar homes in Greenwich, he said.

"Some are looking at homes over $3 million as a place to put their capital," Pruner said, commenting that he saw some wealthy New York City residents looking for homes in Greenwich when it became apparent that Democrat Bill DeBlasio was going to be elected their mayor.

Year in review

The year 2013 was a solid one in terms of home sales in Connecticut and Fairfield County, according to Re/Max of New England, which said this week that year-over-year single-family home sales increased 18.4 percent in the county, while condominium sales rose 30.2 percent.

The average median price for a single-family home in Fairfield County was $390,955 in 2013 -- a 3.6 percent rise over 2012.

And Virginia Klein, broker/owner of Re/Max Heritage in Westport, said she believes the strong demand for residential real estate will continue in the county and Connecticut, but higher interest rates could affect some home buyers.

"Rising interest rates might put a little bit of a damper on first-time home buyers," Klein said, but she and her staff are still busy. "The spring market has started and that's early. Binders are coming in. It's like the roller skates are on, and we're ready to rock."

Declining inventory

Like Cooney, Klein still considers 30-year fixed-rate mortgages in the high 4 and low 5 percent range a good deal and said growing consumer confidence will spur more purchases, but she cautioned that inventory is declining in Fairfield, Westport and Darien.

"We're looking at four to six months of inventory, and it's shrinking every month," she said, adding that she is seeing the relocation market pick up for the first time in a while.

It has become cost efficient for people to buy land and build their homes, according to Klein.

"Consumers are buying up $1 million to $1.5 million properties in Darien just for the land so that they can level the existing home and build their ideal home," she said.

Meanwhile, a dramatic drop in mortgage refinancing applications has taken a toll on mortgage businesses, Walsh said, though his company is adding staff and has moved to a new location in Milford.

"We're holding our own. In this market, that's a victory," said Walsh. "We're on the front lines. We can see if it's getting hot or cold."

At the same time, revised federal standards for the mortgage industry are putting lenders in limbo, forcing them get tougher with their application process when potential home buyers seek out loans.

"The government decided mortgages were the reason for the financial meltdown," said John Walsh, president of Total Mortgage, a direct-to-consumer lender in Milford that is licensed in 30 states. "It's a slippery slope. It's one of those things that will make it more difficult to find a mortgage in 2014."

And those new restrictions put into effect by the Consumer Financial Protection Bureau are sure to put a crimp in housing purchases, he said, adding that as of Friday, mortgage applicants will have to meet stringent debt-to-income guidelines set forth by the new federal regulations.

"Housing may stay on the market longer, and you may not see prices as high. The housing recovery is still in a fragile state. You might see a decrease in interest rates to spur the housing market again," Walsh said, commenting that the economy could suffer. "The home purchase market drives the economy. They (home buyers) go to Home Depot or they hire a painter."

Like Walsh, Heidi DeWyngaert, chief lending officer and president of New Canaan-based Bankwell Bank, understands the need to avoid another housing meltdown, but she said the federal regulations could affect how lenders operate.

The rules "are to protect the consumer from loans for which they do not qualify," she said, and lenders must recognize the consequences because mortgage holders can now sue if they believe they were wrongly directed into a mortgage they cannot afford. "It may impact the housing market."

Some banks might reduce lending, said DeWyngaert, whose bank does offer non-qualified loans, after an intensely scrutinizing application process.

"Our guidelines are not going to change. We use these guidelines as a rule anyway. We'll check every box twice."

Most who qualified for a conventional loan prior to the new regulations will be able to obtain a mortgage in the future, said Steve Habetz, vice president of Stamford Mortgage, a subsidiary of the Bank of Danbury.

"A lot of guidelines. . . already are in effect," he said. "It will make lenders take a closer look at applications."