Financing
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Our Local Real Estate Market Keeps Testing Basic Economic Theories |
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 Between 2019 and 2022 we saw an ever increasing number of buyers buying homes (or trying to do so) in Harrisonburg and Rockingham County. Demand for homes skyrocketed, mortgage interest rates fell to historic lows, supply increased a bit (new builds) but not a enough... and perhaps unsurprisingly, median home prices increased 10% per year for three years in a row. But then, 2023... Mortgage interest rates have increased 30% over the past year, and have increased 150% over the past two years, making mortgage payments higher than ever. But yet, the median sales price keeps rising. Demand seems to be falling, with 24% fewer home sales in the first eight months of 2023 as compared to the same timeframe last year. But yet, the median sales price keeps rising. Supply is now starting to increase, with 31% more active listings on the market now as compared to a year ago. But yet, the median sales price keeps rising. What comes next!? As I pointed out yesterday, the higher inventory levels are only higher than the Covid-era lows, and are in line with or lower than pre-Covid levels. And certainly, fewer home sales may be a result of fewer sellers selling just as much as it may be a result of fewer buyers trying to buy. So, over the next two years, will we potentially see slower home sales, higher mortgage interest rates, higher inventory levels -- and yet, still see stability and/or increases in the median sales price? Yes, it seems quite possible. Or, could slower home sales, mortgage interest rates and higher inventory levels lead to a decline in the median sales price? This seems more likely, in theory, but we're just not seeing it yet, and I don't know if we'll see it at all. | |
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Sample Mortgage Payments In September 2023 |
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 Mortgage interest rates are on the rise... they were 3% two years ago, 6% a year ago, and just above 7% today. Let's see how those 7-ish percent mortgage rates translate into some mortgage payments these days. All of these illustrations are for homes in the City of Harrisonburg, and (since I'm not a lender) they are not offers for mortgages with specific terms... $250K purchase with 5% down = $1,833 / month $350K purchase with 10% down = $2,449 / month $450K purchase with 20% down = $2,850 / month $600K purchase with 30% down = $3,400 / month Working backwards for a moment, if you were trying to keep your mortgage payment under $1500 (for example) you'd be looking at a $205K purchase price with a 5% down payment. With current mortgage interest rates above 7%, it's more important than ever to talk to a lender sooner rather than later to determine how much you can afford in a mortgage payment -- and/or how much you want to spend each month on your mortgage payment. If you need a recommendation for a great local lender, just let me know. | |
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Yes, Mortgage Interest Rates Are Still High. |
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 The current average 30 year fixed mortgage interest rate is 7.23%. That is the highest it has been in over 20 years. Actually... 22 years, it seems. The last time it was higher was back in June 2001 when it was 7.24%. What lies ahead? Per this NY Times article... "Economists predict that mortgage rates will remain elevated for at least a few more months. And even when they start to come down, they are expected to settle well above the 3 percent rates that home buyers enjoyed during the early stages of the pandemic." ...and... "The Mortgage Bankers Association, an industry group, recently forecast that the average 30-year mortgage rate would fall to 5 percent by the fourth quarter of next year." So... hopefully these historically high mortgage interest rates (that followed some historically low mortgage interest rates) will eventually start to decline again... but we're not seeing it yet. | |
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Existing Home Sales Are Down 19% In 2023. Why? |
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 We've seen a 19% decline in existing home sales in 2023 - which includes all home sales in the HRAR MLS except new construction sales. In the first five months of last year there were 466 existing home sales - but there have only been 377 existing home sales in the first five months of 2023. Why are there fewer existing home sales taking place right now in Harrisonburg and Rockingham County? Theory 1 - Affordability Home prices have increased significantly (+32%) over the past three years and mortgage interest rates have as well (+108%) and these two trends have caused housing payments for most new buyers to increase significantly. So, one theory for why we are seeing fewer existing home sales is because homes are less and less affordable. But... if this theory were true... that higher home prices and higher mortgage interest rates were making housing too unaffordable... thus reducing buyer demand for existing homes for sale... then we would see inventory levels starting to climb as a result. But, we're not seeing inventory levels meaningfully rise -- which calls into question whether the reduction in existing home sales could really be related to affordability. Theory 2 - Homeowners Want To Hold Onto Their Low Mortgage Interest Rate Another potential theory for why we are seeing fewer existing home sales... is that perhaps we are not seeing a decline in the number of buyers who want to buy... but rather... a reduction in the number of sellers who are willing to sell. Take a look at the mortgage interest rates of current homeowners! 82% of homeowners have mortgage interest rates below 5%. 62% of homeowners have mortgage interest rates below 4%. If those homeowners sell their current homes (existing homes) they would be trading in their low mortgage interest rate for a new one around 6.5% or a touch higher. Thus, it is quite possible that we are seeing lower number of existing home sales because fewer homeowners are willing to sell... because they LOVE their low mortgage interest rates. Theory 3 - What Say You? Have any other theories? Email me! | |
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Monthly Tax Bills in the City of Harrisonburg and Rockingham County Over Time |
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 If you're buying a median priced home in our market (Harrisonburg and Rockingham County) you would be spending $325,000. Will you pay more in property taxes if that house is in the City or the County? In most cases, you will pay more property taxes if you live in the City. The analysis above looks at how a monthly property tax bill has changed over the past decade for a median priced home in the City and County. To be clear, this analysis uses:
Also of note -- this analysis of monthly property tax bills over time does not adjust for inflation. A $260 monthly tax bill in the City of Harrisonburg in 2023 is not the same as a $260 monthly tax bill in 2013 as inflation has been running hot over the past few years. Certainly, one reason why the City tax bill has increased as much as it has over the past few years has been to fund the new high school currently under construction in the City. Will this difference in tax rates in the City and County result in some buyers deciding to buy homes in the County instead of the City? Maybe - but my experience has been that the tax rate is not what causes a home buyer to consider a home in one locality or the other. Multiplying by 12, here's a look at the annual tax bill in the City vs. County for a median priced (market wide) home in our area...  | |
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Monthly Housing Costs Up 84% In Three Years |
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 Over the past three years... [1] The median sales price has increased by about 10% each year. [2] The average mortgage interest rate has doubled. [3] The City real estate tax rate has increased by 12%. Given these three changes, and how each plays into housing costs, it shouldn't be much of a surprise that monthly housing costs have increased significantly over the past three years. Three years ago, if a home buyer financed 80% of their purchase of a median priced home, they would be paying about $1,064 per month. Now, if a home buyer finances 80% of their purchase of a median priced home, they will be paying $1,959 per month. Beyond the "wow, that's a crazy increase" here are a few of my other thoughts and observations... [1] Perhaps this is a statement of the obvious... but this "increase in monthly housing cost" only affects those who are buying homes now. Anyone who already owns a home is not seeing this type of an increase in their housing costs. They might have a minor increase in their monthly housing costs due to rising assessed values, rising real estate tax rates and/or rising homeowners insurance rates, but those will amount to a relatively small increase in their monthly housing costs compared to what is described above. [2] Yes, this is a big increase... but it's partially because monthly housing costs were abnormally low for quite a few years as a result of super low mortgage interest rates. We have now exited a prolonged period of tremendously low mortgage interest rates. This kept housing costs very low for anyone buying a home (or refinancing their mortgage) during that unique time of low mortgage interest rates. Thus, the increase in monthly housing costs seems huge -- but it's only partially because of how high mortgage rates are now, but also very much about how low those mortgage rates were very recently. [3] Just a note on methodology. The housing cost numbers above are calculated using the median sales price of homes sold in Harrisonburg and Rockingham County per the HRAR MLS, combined with the average mortgage interest rate for the duration of the year, combined with the real estate tax rate for the City of Harrisonburg, and assumes a 20% downpayment. Bottom line -- it is quite a bit more expensive for someone to buy a home now compared to just a few years ago. | |
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Higher Mortgage Interest Rates Are Making Would Be Home Buyers More Thoughtful About Offers |
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 Back when mortgage interest rates were 3% - 3.5%... 10:00 AM - new listing hits the market 10:10 AM - drive by 10:11 AM - text Realtor to set up showing 1:30 PM - walk through the house 1:55 PM - get kicked out by the next buyer in line to see it 2:30 PM - make an offer on the house (90% chance you'll make one) Home buyers didn't have to think very hard at all about whether to make an offer on a house they liked because their mortgage payment would be pretty darn low given historically low mortgage interest rates at the time. Now a days, with mortgage interest rates of 6% - 6.5%... 10:00 AM - new listing hits the market 12:15 PM - drive by 12:30 PM - text Realtor to set up showing (next day) 10:00 AM - walk through the house 4:00 PM - talk through the mortgage payment details with lender (next day) 9:00 AM - make an offer on the house (33% chance you'll make one) Buying a $350K house (for example) is a big decision! Buying a $350K house can seem like a smaller decision with 3.5% mortgage interest rates. It's only a $1600/month mortgage payment given a 20% down payment. Buying a $350K house can seem like a really big decision with 6.5% mortgage interest rates. It's a $2,115/month mortgage payment given a 20% down payment. As noted in the comparison above, buyers are still making decisions relatively quickly -- but they're thinking things through a bit further -- and they're not always choosing to make an offer. These higher mortgage interest rates do impact the market, even though they haven't caused home prices to drop in Harrisonburg and Rockingham County. | |
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The Amount You Are Comfortable Paying For Your Next Home Might Be Different Than The Amount Your Lender Would Let You Spend |
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 So, you took my advice and talked to a mortgage lender to get a sense of what you are qualified to spend and to get a feel for potential mortgage payments. Great! You had been hoping to spend up to $350K on a house. But your lender said you could spend up to $475K on a house! But... when you look at the monthly mortgage payment associated with a $450K home purchase... WOW!!! How does your lender expect you to pay this much per month, and still have money for other life expenses, travel, emergency savings, etc.?!? This is not an uncommon place to be. Plenty of well qualified buyers discover that their lender will qualify them for a home purchase price that would involve a monthly mortgage payment much higher than is comfortable. So... start with a conversation with your lender about how high you *could* go on price... but be prepared to possibly need to do a bit more work with your lender to dial back that potential purchase price until you get to a monthly mortgage payment that is comfortable for you! | |
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Higher Mortgage Interest Rates Might Be Resulting In More Buyer Competition In Moderate Price Ranges |
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 Clearly, the Harrisonburg and Rockingham housing market is still quite competitive right now, especially for homes under $400K. One reason for this might be related to current mortgage interest rates! Higher mortgage interest rates result in higher monthly costs. If some home buyers were looking in the $400K - $500K range when mortgage interest rates were around 3%, they may very well now be looking in the $300K - $400K range now that mortgage interest rates are above 6%. After all, if you're financing 80%... $450K purchase at 3.25% mortgage interest rate = $2,011 per month $350K purchase at 6.25% mortgage interest rate = $2,070 per month Yikes! So, if $300K - $400K purchasers were previously only competing with eachother, they might now find themselves competing with buyers who were previously planning to spend up to $500K! That said, it is of course also true that some $300K - $400K purchasers might also have had to reduce the target price for their home purchase as well. | |
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Home Buyers Happy To See Mortgage Interest Rates Continuing To Decline |
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 A year ago, the average 30-year fixed mortgage interest rate was 3.6%. Over the course of the past year that climbed... and climbed... and climbed... to a peak of 7.08% in October and November of 2022. As such, many buyers entered 2023 assuming we would likely see mortgage interest rates at or above 7% for much or most of 2023. Thankfully, that doesn't seem to be how 2023 is likely to unfold. After peaking at 7.08%, the average mortgage interest rate has been mostly declining... down to an average last week of 6.15%. I think it is extraordinarily unlikely that we would get back down to mortgage interest rates below 4% in 2023. It is also relatively unlikely that we'll see interest rates below 5%. But... I think it is now seeming unlikely that we'll see mortgage interest rates stick around above 7%. As such... we seem likely to see mortgage interest rates above 5% and below 7% in 2023... and if we give it a few more weeks we might conclude that rates might stay above 5% and below 6% for most of 2023. This is a trend that home buyers in 2023 are quite happy to see! | |
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Trading Up For A New House Will Likely Also Mean Trading Up Your Interest Rate |
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 For about three years (2019-2021) the average mortgage interest rate for a 30 year fixed rate mortgage was less than 4%. It even dropped below 3% at times. As such, anyone who bought a home during that timeframe likely has a mortgage interest rate below 4%... and many (many) other homeowners refinanced during that timeframe to lower their rate and their mortgage payment. So now we find ourselves in a situation where many mortgage holders have a mortgage interest rate below 4% or even below 3%. Thus, when any such holder of a low mortgage interest rates considers selling their home to trade up for a new house... they will also be trading up their mortgage interest rate. It was often an easy decision to sell a $300K home and buy a $400K home when you were paying off a 5% mortgage and taking out a new 3.5% mortgage. Now, if you're selling a $300K home with a 3.5% mortgage and are considering the purchase of a $400K home with a 6.5% mortgage... the math is going to work out a BIT differently. I suspect there will still be plenty of people selling and buying homes in 2023, even with these higher mortgage interest rates, but I think there will be fewer people swapping one house for another unless it is a significant upgrade in the house... because it will more than likely be a significant upgrade in the mortgage interest rate. :-/ | |
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Monthly Housing Payments Have Changed A LOT In The Span Of A Single Year! |
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 With some regularity I take a look at trends in mortgage interest rates... but nobody really specifically cares about their mortgage interest rate... they really care about their monthly housing payment. The graph above shows how much monthly housing costs have changed over the past year. A year ago, a home buyer purchasing a $300K house in the City of Harrisonburg, with a 20% down payment, would lock in a housing cost of just over $1300 per month. Today, a home buyer purchasing a $300K house in the City of Harrisonburg, with a 20% down payment, would lock in a housing cost of just under $1800 per month. The slight bit of good news, I suppose, is that this potential monthly housing cost has been edging down over the past month-ish from over $1900 to under $1800 as mortgage interest rates have started to decline a bit. I don't think we're going to get back down anywhere close to the 3% ($1300) range in 2023 or 2024, but perhaps the monthly housing cost for a $300K home can work its way back down to $1700 (5.75%) or even $1600 (5.15%) over the next few years? | |
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If You Bought A Home In 2020 Or 2021 You Should Be Retroactively Thrilled About Your Mortgage Interest Rate |
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 Did you buy a home in 2020 or 2021? If so, you likely locked in a mortgage interest rate that was the lowest we've seen in the past 10 years... and actually... the lowest we've seen... ever! So, for all of the buyers from the past two years, please look back and be thrilled that you were able to take advantage of that unique opportunity to lock in a very low interest rate on what is likely to be one of the largest purchases of your lifetime. Hopefully your home will work for you for many years to come and you will continue to enjoy the benefits of that super low interest rate. And... for would-be home buyers of 2022... yes, current mortgage interest rates are the highest we have seen in the past 10 years. In fact, we have to go all the way back to 2000 to find an interest rate above 7%. But... mortgage interest rates are starting to trend back down over the past month. They have dropped from about 7% to about 6.5%... and I have seen some recent prequalification letters much closer to 6%. Just as those record low mortgage interest rates didn't stick around forever, it seems unlikely that these record high mortgage interest rates will stick around forever... and they might pass more quickly than we realize. | |
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Talking Things Through With Multiple Lenders Makes Sense Again |
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 Over the past three or four years mortgage interest rates were sooooo low that there often wasn't too much of a difference in the interest rate quoted by one lender vs. another. Furthermore, buyers didn't have to think too creatively about different loan programs as far as fixed rate vs. adjustable rate, etc. The thirty year fixed mortgage rate was so exceptionally low that almost all buyers were purchasing with that program. But, now things have changed... Mortgage interest rates are quite a bit higher now... at or above 7% for a 30 year fixed mortgage rate! As such, savvy home buyers are... [1] Talking to more than one lender to see how interest rates and closing costs compare. [2] Considering fixed rate mortgages alongside adjustable rate mortgages that start out fixed for (usually) five or seven years. If you are buying a home in late 2022 or early 2023 it will matter now more now than ever that you talk to an experienced, professional, responsive, creative mortgage lender to make sure you are finding the financing program that is the best fit for your financial scenario and your plans for the coming years in your new home. | |
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Engaging With A Lender Continues To Be Essential For Buyers And It Does Not Have To Be Scary |
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 The local real estate market might be slowing down, a touch. For the past year the median "days on market" has been five days... which means that half (or more) homes that sold were under contract within five days of hitting the market. That is fast! Perhaps we'll eventually get to a time where homes are taking a full week or two (gasp!) to go under contract. In this very recent speedy market it was absolutely imperative that you had talked to a lender before you went to see a house for sale. You would likely need to make an offer within 24 hours of seeing a home, so having a lender letter in hand was a must. But even if or as the market is slowing a bit it is and will continue to be very important to have a lender letter in hand when going to see a house... though for slightly different reasons this time. Before... you needed a lender letter in hand to accompany the offer that you might make hours after viewing a house. Now... you need a lender letter to accompany an offer as well as to make sure you know what your mortgage payment will be within the context of recent rapid increases in mortgage interest rates. So, if you're in the market to buy a home now, but it's been a while (six months, a year, etc.) since you have talked to a lender... you should do so now. Talking to a lender doesn't have to be scary. They'll need some basic financial information from you in order to help you understand the type of mortgage you will qualify for and thus the price range in which you should be searching for homes. If you need a recommendation or recommendations for a great local lender, let me know! Call/text me at 540-578-0102 or email me here. | |
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Home Buyers Who Want To Buy A Home In The Next Year Likely Should Not Wait For Mortgage Interest Rates To Come Back Down |
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 If you are looking to buy a home right now you might be surprised by higher mortgage interest rates than we have seen for much of the past year... January = 3.45% February = 3.92% March = 4.16% April = 5.00% May = 5.30% June = 5.78% July = 5.51% August = 5.13% September = 6.02% Now = 6.94% How could mortgage interest rates be close to 7% after having started the year at 3.45%? Surely mortgage interest rates will start coming back down again soon, to 4% or 5%, right? Or even 6%? I don't think that we can assume that mortgage interest rates are going to drop substantially at this point. Mortgage interest rates may very well continue to be between 6% and 7% for the next 12 months. As such, if you are thinking about buying a home right now, you should see what your payments will look like at current mortgage interest rates and decide if that is a monthly payment that will work for you. If so, it may be worth going ahead and moving forward with a purchase rather than holding off in hopes of lower mortgage interest rates. While it is certainly possible that mortgage interest rates will start declining again, I don't think we can assume that is what will happen next. | |
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If You Will Be Buying A Home In The Next Year, Sooner Might Be Better Than Later |
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 Home prices have increased quite a bit over the past few years. Clearly, that's a bit of an understatement. ;-) Mortgage interest rates have increased drastically (doubled+) over the past year. As such, some would be home buyers might be wondering whether they should go ahead and buy a home now, or wait until next year. Waiting would make sense... if you thought home prices were going to decline and/or if you thought mortgage interest rates were going to decline. I think there is a relatively low possibility that we will see a significant decrease in home prices and/or mortgage interest rates over the next six to twelve months. Buying sooner rather than later would make sense... if you think home prices will either stay at about the same level or they might increase... and if you think mortgage interest rates will either stay at about the same level or they might increase. I think there is a relatively high possibility that home prices and mortgage interest rates will either stay at the same level or increase over the next six to twelve months. So, if you are almost certainly going to buy a home in the next 12 months, then the chances are sooner will probably be better than later. Clearly, this guidance is based on my best guesses (or your best guesses) about future trends in home prices and mortgage interest rates... so we're all just guessing. Only waiting and watching will show us what really will happen. Let me know if you want to chat further about this topic as it relates to your particular portion of the local housing market. | |
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Where Might Mortgage Interest Rates Go From Here? |
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 30 year fixed mortgage interest rates were around 3% a year ago... and now they are up to 6.7%. Ahhhh! Some home buyers today, taking out mortgages at today's rates, are wondering whether it is likely that they will be able to refinance their mortgage anytime soon to get a mortgage rate lower than 6.7%. It's very difficult to know whether that would be likely... but a lot of that would have to do with what historical norm we may or may not gravitate back towards within the next few years. Are mortgage interest rates going to settle back down to 3%? That seems extraordinarily unlikely. Might they drop back down to the average rate over the past 10 years, of 3.8%? That seems somewhat possible, but still not necessarily likely. Might mortgage interest rates drop down to the average rate over the past 20 years, which was 4.7%? That seems quite possible, which would result in a 2% drop from today's 6.7% to the average over the past 20 years of 4.7%. Or, if you want to be even more conservative, we could look at the average mortgage rate over the past 30 years... which was 5.7%, still a full percentage point below the current rates. Another way to look at this is to note that mortgage interest rates were above the current 6.7% rate between 1992 and 2001... and below the current 6.7% rate between 2001 and 2021. Are we headed back towards mortgage interest rates we saw in the 90's? Or the early 2000's? As you might have gathered, I have no actual answers here other than to point to this historical data as a greater context for current mortgage interest rates. :-) | |
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Well, I Suppose This Was One Way To Revive The Market For Future Mortgage Refinances? |
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 Sorry. Bad joke. Probably too soon. Mortgage interest rates have risen even further this week... with the current average rate on a 30 year mortgage now at 6.7%. One year ago it was 3.01%. Also one year ago, some said that every last person who could ever possibly think about refinancing their mortgage certainly must have done so. But now it seems some buyers are likely entering into fixed rate mortgages at rates that are high enough that they will be planning to refinance sometime in the next few years with the assumption that at some point we won't be looking at 6.7% interest rates any longer. I suppose it is also important to note that a 5/1 ARM is currently at 5.3%, which might be a MUCH better option for some home buyers. This mortgage interest rate would stay level at 5.3% for five years, and then have the potential to adjust once a year each year thereafter. It's a topsy-turvy time in the mortgage world right now, which can impact the home buying world, which can impact the home selling world. The steady increase in mortgage interest rates has certainly affected housing affordability, especially when piled on top of higher home prices. | |
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Will A 6% Mortgage Interest Rate Seem High After A Year Of 6% Rates? |
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 Many (though not all) home buyers in the market today have been shopping for homes for the past three, six or 12 months. As such, when they encounter today's mortgage interest rate of around 6.25% they find it to be high. Quite high! After all, six months ago, the average 30 year fixed rate mortgage interest rate was 4.25%... and a year ago, the average rate was a touch below 3%. So, of course, a 6.25% mortgage rate seems high compared to 4.25% or 3%. But... fast forward a year... if mortgage interest rates have remained around 6% for a full year, will they then stop seeming and feeling high? Clearly, a 6.25% mortgage interest rate a year from now will still result in the same mortgage payment as a 6.25% mortgage interest rate does today... but perhaps that payment (and that interest rate) will no longer be viewed in the context of what could have recently been... at 4.25% or 3%. Of course, I'm hoping mortgage interest rates don't really stay this high (around 6%) for a full year, but if they do, maybe they won't seem quite as high to home buyers a year from now. | |
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Scott Rogers
Funkhouser Real
Estate Group
540-578-0102
scott@funkhousergroup.com
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