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Home Buyers Not Deterred by Rising Interest Rates

by By Satinder Haer

Home Buyers Not Deterred by Rising Interest Rates 

For over 6 years, Americans enjoyed a period of historically low interest rates, making homeownership more affordable than ever before. Right before the turn of the year, the Federal Reserve Board’s Open Market Committee decided to raise benchmark interest rates and, in effect, mortgage rates. Many experts predicted that rising interest rates would impact the plans of many potential and active home shoppers. However, recent data indicates that while home shoppers are taking into account rising interest rates, most are altering, not cancelling their homeownership plans.  

Check out how various demographics believe rising interest rates will impact their home search and how they’d adjust their plans.  

Overall Home Buyer Response

Increasing interest rates will have minimal impact on overall home buyer behavior according to Zillow’s survey results. Seventy percent of the respondents who are actively searching for a home or plan to within the next year said their plans to buy a home would remain intact, even if mortgage rates rose to 4.5 percent. Furthermore, less than half of current home shoppers said they would look for a smaller home or search in a less expensive area in order to factor a higher interest rate into their purchase. Only 30 percent of home shoppers felt their plans would be derailed or significantly impacted by rates rising to 4.5 percent. These responses indicate that the majority of active home shoppers felt their plans would be unaffected or insignificantly altered by the Federal Reserve’s interest rate hike.  

Minority and Young Adult Response

Certain groups of home buyers revealed a much higher likelihood of adjusting their homeownership plans due to rising interest rates. Asian and Hispanic respondents were more likely to rethink their plan to purchase than their white or black counterparts. Out of the Asian and Hispanic respondents who indicated they plan to buy a home within the next year, 63 percent said they would delay their home purchase, adjust the type of home they are looking for, or search in different neighborhoods if interest rates were 4.5 percent. Comparatively, only 40 percent of black and 41 percent of white respondents said they would rethink their plans.

Similarly, young adults indicated a greater likelihood of rethinking their home buying plans in response to rising interest rates. Fifty-three percent of adults between the ages of 23 and 34 indicated they would reconsider their options if mortgage interest rates were 4.5 percent. In the 35- to 54-year-old bracket, only 39 percent of respondents indicated they’d reconsider. And of those 55 years and older, only 36 percent would reconsider. Older buyers were less concerned by the impact that a hike in interest rates would have on their homeownership plans; this may be explained by the fact that younger buyers are struggling to break into homeownership and even a 1 percent interest increase could put ownership out of reach for them.

Bigger Home Buyer Concerns

Rising interest rates ranked low among the concerns that home buyers reported feeling. The number one concern among respondents was being able to find an affordable home; in other words, concerns regarding the inventory and pricing of homes on the market. Following affordability were concerns about saving for a down payment and qualifying for a loan. Rising interest rates were cited as the 4th most pressing concern, out of the six options presented to the respondents. While rising interest rates might have an indirect effect on some of the other concerns that home buyers have about buying a home within the next year, interest rates themselves are a relatively low-ranking concern.

Despite the recent speculation about the potential effect rising interest rates may have on current and near-future home buyers, home buyers do not appear to be too concerned. Many of them are likely ready to escape the rental crisis they have experienced in the last few years and buying a home is more affordable than it has been in the past, even with higher interest rates. The era of low interest money might nearing an end, but home shoppers are not deterred quiet yet. 

Nate Martinez, RE/MAX Professionals

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Housing Market Improved?

by Nate Martinez

This morning, I was catching up on some reading and doing a little bit of research trying to keep my brain wrapped around the fast moving pace of our real estate market. While most people are still asleep, I am up at 4:00am reading about current market trends! So I thought I would use this blog to share with you my findings. So has the housing market improved?

I read an article provided by which was a report from ASU real estate studies professor, Jay Butler. His report shows the percentage of existing home sales that went to foreclosure dropped to 36% in April. This was a slight improvement from the 38% in March and a large improvement from the 43% reported in January and February.

These improvements could be from a variety of factors, such as more loan modifications and short sales being approved and/or the banks holding back on processing the actual trustee sales. There are still plenty of people out there who are underwater and could or will face foreclosure. But, in the short term, these changes in the percentages could shift the value of the housing market – thus stabilizing pricing and curbing what has seemed to be an out-of-control-downward-tailspin for the past 4 years.

I pulled the active inventory in the MLS (Arizona Multiple Listing Service) for Maricopa County and found some rather shocking data:

1.) The available inventory currently – homes for sale – is only 25,441.
2.) There is a code we use in the MLS which is “for sale with a contingency”, which simply means there is an offer on the home, but the listing agent is continuing to solicit back up offers. So technically or not, depending on which side of the fence you view the AWC listings, this brings our MLS inventory to 33,418 – or a potential of 7,977 additional homes that we could add into the available inventory.
3.) Today, there are 14,229 homes currently are sale pending. Those homes have what we Realtors would consider a solid offer and will most likely close as planned.

Now, if we take the first number of available homes (25,441) compared to those that are truly sale pending (14,229), that means, right now, we only have 1.79 months of available inventory for sale – WOW! Compare these numbers to this time last year, when we were looking at least a 12 month supply of inventory and at one point at the bottom of the market, we had over a 24 months of supply of homes for sale. Personally, I can share with you my own active listing inventory is the lowest it’s been since I started working the REO market.

So what does this mean to you? Well the rule of supply and demand teaches us that when supply is low, demand is high and vice versa - or some people would say "buy low and sell high". With only 25,441 homes for sale, this will evitably increase activity, creating multiple offer scenarios and thus driving prices back up. How far up, well that will remain to be seen – but bottom line is this – if you have been waiting to buy at the bottom of the market NOW is it.

One last thing before I wrap up this blog – the median sales price of a home in Maricopa County is hovering around $125,000 according to Jay Butler. I personally, have my own opinion and think this number may be a little high, especially if we are looking at specific areas of the Metro city. However, be that as it may, the point I want to make is really about the interest rates. Right now, you can lock in an FHA or VA loan for approximately 4.375% and if you wanted to do an adjustable 5/1 ARM, you could start with a rate as low as 3.750%. Conventional loans are holding steady at around 4.625%. On a purchase of $125,000, using the purchase price as the loan amount on an FHA loan, the principle and interest payment is $625.00 a month. Think about how this dollar amount could change if you are buying a $50,000 or a $75,000 or a $100,000 house? You can’t rent for this cheap! Call me today to get started – seriously, if you wait much longer, you are going to miss out on the best time in the history of our housing market to buy.

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Nate Martinez
RE/MAX Professionals
20241 North 67th Avenue, Suite A1
Glendale AZ 85308
Fax: 602-532-7352

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