Raleigh, North Carolina — As mortgage rates rise, fewer people can afford to enter the housing market. Right now, home loan applications are down 21% from a year ago.
Lenders admit the Triangle real estate market is slowing due to rising mortgage rates.
Even though interest rates have gone up a few percentage points, that’s a huge leap: potentially hundreds of thousands of dollars more in interest for potential buyers and those looking to refinance.
California native Dave McCulloch moved into a downtown Raleigh apartment with dog Dakota last fall, and they love it.
“It looks like there’s a lot more life here than maybe a year ago,” he says. “You get to know people. I come down here all the time and see the same government people and they’re like, ‘Hey, Dakota.'”
He just wishes he had bought instead of rented back then.
Interest rates are incredibly high – at 5.1% and above.
Jon DeHart, a loan officer for Movement Mortgage in Durham, says that if you bought a $450,000 house with 20% down payment at 3% interest earlier this year, your monthly bill before taxes and insurance for a 30-year mortgage would be $1,500. Now, with a 5% increase in interest rates, the same house at the price with a 30-year mortgage would cost you $1,900 per month.
“So they had about a 25% increase in payouts, going from a 3% rate to a 5% rate,” he says.
If you want to buy now, having a good credit score can help keep your rates low. You can also find lower rates by locking into a shorter 15-year mortgage. An adjustable rate mortgage, known as an ARM, starts at a lower rate; however the rate increases after a few years, which can be risky. This is a good option for people who know they will be moving within this time frame.
“It won’t hurt them when they review an ARM because they won’t be there when the adjustment is made,” he says.
McCulloch hopes to stay in the Triangle for the long term, but for now that means as a tenant.
“I’m just waiting right now. I don’t feel comfortable making the decision to buy a house right now,” he says.
Rates may change again soon. The Federal Reserve meets next week to set interest rates. Although they don’t dictate mortgage rates, it will certainly have an impact.