SIOUX FALLS, SD (KELO) – We’re only three weeks into the new year, but mortgage rates are already up about half a percent since Jan. 1St— and industry experts expect the uptrend to continue throughout the year.
“When interest rates go up, it really impacts every buyer that’s in the market right now,” said Tyler Goff of Hegg Realtors.
In his more than 15 years of real estate experience, Tyler Goff has found that the home buying process typically takes around 90 to 120 days from your initial mortgage approval to the closing of a home. Potential home buyers stuck in this window right now are seeing a big impact.
“If they’re now quoted at a lower interest rate for their payment and then the interest rate goes up, that shifts the field goalpost a little bit,” Goff said.
“Interest rates started the year at about 3.25 percent, now they’re up to about 3.75 percent,” said Kevin Carlson, Plains Commerce’s senior mortgage banker.
Even if half a percent doesn’t seem like much…
“Let’s say a $250,000 loan — about the average home price in this region — is going to mean about a $70 increase a month,” Carlson said.
… it makes a big difference in how much homebuyers can afford.
“For the same payment, instead of a $250,000 house, it’s now a $235,000 house. So people lost about $15,000 in purchasing power last month for that price point,” Carlson said.
Carlson says the industry braces for an even greater impact throughout the year as the Federal Reserve works to fight inflation.
“Since the start of the Covid response, they have deliberately kept interest rates low,” Carlson said. “Now the Fed is starting to lift its thumb off that scale, so we’re starting to see the impact of that… and it’s not going to stop, it’s just going to intensify.” We expect interest rates to continue to rise,” Carlson said.
But even as interest rates are rising, Carlson says it’s important to keep an eye on how those rates compare to the past few years.
“Rates are increasing from where they were, but historically, with the exception of the last few years. These are still the lowest rates we’ve seen,” Carlson said.
“Really, for the past two years, they’ve been at historically low rates that were previously unheard of,” Goff said. “So there’s reason to believe interest rates will rise this year.”
As rising interest rates add pressure to a real estate market that has already seen house prices rise by about 20 percent over the past year…
“The demand in Sioux Falls just keeps getting bigger and bigger,” Goff said.
The folks at the real estate agency agree that if you want to secure a new home and a low mortgage rate before prices go up even more, now is still the best time to get into the growing housing market.
“As property values rise and interest rates continue to rise, it will impact home affordability. The flip side of that is that we’re also seeing rents rising at astronomical rates,” Goff said. “If you’re interested in securing your monthly payment, buying and using a mortgage is a smart way to set your monthly apartment payment.”
That’s easier said than done in this competitive real estate market, where Sioux Falls has one of its lowest inventory of homes for sale ever.
“To the people who are currently in the market, I would say don’t give up hope. There are people every day, people win bids. Just because we expect interest rates to go up in the future, the sooner you can get a mortgage loan, the better,” Carlson said.
While the competition means less choice, Goff says that even in this competitive market, he’s able to get most clients into a home in a 90- to 120-day time frame, as he always has.