Mortgage rate rise roils housing market but doesn’t shut off demand

Real Estate agent Maura Neill, right, looks over a Roswell house for sale with homebuyer Anna Devlin on Friday, April 29, 2022.

Credit: Steve Schaefer

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Real Estate agent Maura Neill, right, looks over a Roswell house for sale with homebuyer Anna Devlin on Friday, April 29, 2022.

Credit: Steve Schaefer

Competitive bids, cash buyers and rising rates complicate home buying

Rising mortgage rates have changed the way she searches, but they haven’t kept Anna Devlin from house-hunting.

With three young children and a husband working at home, Devlin has been looking for a larger place to live since late last year, hoping to stay in Roswell and ready to pay up to $700,000. Then came higher mortgage rates, which cut a buyer’s purchasing power by raising monthly payments.

Now the couple is looking at less expensive homes and expanding their search area, but they still see the kind of bidding wars that have been pushing prices higher for more than a year, she said.

“We have lost homes where we bid 11 to 15% above the asking price — and I’m talking about houses that need work,” Devlin said.

Atlanta’s piping hot housing market was supposed to cool when mortgage rates rose. And maybe it still will. But buyers like Devlin and real estate experts say rising rates have only thrown another wrench into a metro Atlanta market marked by soaring prices, heavy demand and scant supply.

Since the end of December, interest on the average 30-year fixed-rate mortgage has nearly doubled to more than 5%, prompting predictions of an end to bidding wars and runaway home prices. That would raise the typical monthly payment on a $300,000 mortgage payment by more than $390 or 32%.

The Federal Reserve raised its benchmark interest rate by half a percentage point on Wednesday as it tries to tame inflation. Though not directly tied to mortgage rates, the borrowing costs for home loans will likely continue to climb as the Fed has signaled more rate hikes are coming.

So far in metro Atlanta, those higher rates haven’t dampened housing demand much, just shifted it.

The percentage of homes sold to cash buyers — often investors— is growing. Some buyers who have stretched their finances to make homebuying a reality, meanwhile, now face increasing prices for just about everything and are sticking with renting, experts say.

Others are switching to adjustable rate mortgages with lower initial rates to try to soften the blow.

For the past year, buyers have been rushing to make offers on desirable homes in a kind of auction that has often sent sales prices higher than what sellers had asked.

The median price of a home in the 12-county core of metro Atlanta was $377,000 in March, up more than 20% from the same month last year, according to Georgia Multiple Listing Service, which tracks transactions statewide.

“Higher rates could ease demand, we could see the multiple offers start to subside, but it hasn’t happened yet,” said John Ryan, chief marketing officer of GAMLS.

Revising searches and standards

Why hasn’t demand dropped?

Factors larger than mortgage rates are at play, said Casey Daniel, vice president at Bank of America.

Atlanta’s job-creation engine is stronger than the national average, and continues to draw more transplants than many competing metros, Daniel said. Plus, many of the new residents are young, well-paid professionals, he said, and demographic pressures can add to housing demand despite higher mortgage rates.

“Look at the millennials who were hit by the financial crisis a dozen years ago,” he said. “Now they are starting families and they are finally ready to buy.”

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A home being built is seen in Decatur on Wednesday, May 4, 2022. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

A home being built is seen in Decatur on Wednesday, May 4, 2022. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

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A home being built is seen in Decatur on Wednesday, May 4, 2022. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

Credit: arvin.temkar@ajc.com

Rising interest rates put the most pressure on people who were already stretching their finances to the limit to afford a home, said Carl Hawthorne, broker at Atlanta Communities. But those buyers represent a small portion of overall demand.

“I think you lose those people, but people who have to buy and sell are going to buy and sell,” he said.

Most other potential buyers are staying in the market and just revising their search, said Maura Neill, a realtor with Re/Max Around Atlanta. She cited two recent listings — one drawing 38 offers, the other 17 — as proof that higher rates have barely dented demand.

But facing much higher potential monthly payments, many buyers have lowered their sights, pricewise, she said.

“Sometimes it’s just a matter of, ‘Let’s just change the area where we’re looking,’” she said.

Another way to stay in the game and evade higher payments is to use an adjustable rate mortgage or ARM, said Bill Adams, president of Adams Realtors which specializes in properties in and close to the city of Atlanta.

A five-year ARM would provide a discounted rate for five years, then adjust after that — typically to higher rates. But buyers might expect to sell the house before that or, if they think rates will drop, to refinance down the road, switching to a fixed-rate.

That approach lets a buyer stick with his or her targets, which is one reason the market itself hasn’t changed much, Adams said.

“Homes are still selling at above list price with multiple offers,” he said. “I have not seen any dampening of demand.”

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Real Estate agent Maura Neill, right, looks over a kitchen of a Roswell house that is for sale with homebuyer Anna Devlin on Friday, April 29, 2022. (Steve Schaefer / Steve. Schaefer@ajc.com)

Credit: Steve Schaefer

Real Estate agent Maura Neill, right, looks over a kitchen of a Roswell house that is for sale with homebuyer Anna Devlin on Friday, April 29, 2022. (Steve Schaefer / Steve. Schaefer@ajc.com)

Credit: Steve Schaefer

caption arrowCaption
Real Estate agent Maura Neill, right, looks over a kitchen of a Roswell house that is for sale with homebuyer Anna Devlin on Friday, April 29, 2022. (Steve Schaefer / Steve. Schaefer@ajc.com)

Credit: Steve Schaefer

Credit: Steve Schaefer

‘It is crazy’

In March, 27% of home sales in the state were all-cash, compared to 20% a year earlier, according to Georgia Multiple Listing Service. Cash buyers are often investors, including some mom and pops and institutional buyers such as hedge funds.

Jayme Stroud of Marietta had badly wanted to buy a home. And it wasn’t the higher mortgage rates that stopped her, it was the near-frenetic competition for a home in her price range — no more than $315,000. That’s a price tier that is in shrinking supply, well below the metro median of $377,000.

She looked at about a dozen homes, touring nearly all of them and really liking much of what she saw.

“I put in four offers and they were all beaten by cash bids,” she said. “It is crazy. I have gone back to being a renter.”

But not all cash buyers are investors.

An increasing portion of cash offers came from companies like Knock, which — for a fee — funds an all-cash bid using equity in the home a buyer is leaving.

As talk of higher rates were swirling late last year, Tim Leljedal, a manager at an energy research organization, was preparing to move his family back to Atlanta from Charlotte and decided to get ahead of the curve. He worked with Knock to pay cash for a $630,000 home in Cherokee County.

“We went from making an offer to having a contract in 24 hours,” he said.

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A home for sale is seen in Decatur on Wednesday, May 4, 2022. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

A home for sale is seen in Decatur on Wednesday, May 4, 2022. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

caption arrowCaption
A home for sale is seen in Decatur on Wednesday, May 4, 2022. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

Credit: arvin.temkar@ajc.com

Rates can tamp down housing supply

There’s also a historical reason that demand has not dropped off, said Kathy Weber, vice president of residential lending Delta Community Credit Union.

Yes, she said, the average 30-year mortgage is higher now than it has been since 2010. But before that, the rate was higher than 5% for more than 35 years, staying above 7% most of that time including 20 years when it was continually higher than 7.5%.

Home sales did not crater even in the late 1970s and 1980s when mortgage rates were in double-digits.

“It’s true that interest rates have increased sharply over the last three months but, for perspective, remember they are rising from record lows,” she said.Historically speaking, rates are still very good.”

Like any market, housing is all about the balance between supply and demand. When the balance swings toward supply, buyers call the tune, but when it tilts toward demand, sellers have the advantage.

In what experts say is a balanced market, with both sides holding equivalent power, the number of homes listed for sale is roughly equal to about six months of sales. But metro Atlanta’s inventory has been continuously less than two months for a long time.

High demand for homes is one factor, but years of lackluster construction that followed the 2007-09 recession and homeowner reluctance to sell are two others, said Kristy Pennington, a broker with Realty Associates of Atlanta.

That’s a problem that makes itself worse, she said. “You put your home on the market and you’ll get top dollar, but then, where are you going to go?”

And while inflation can be toxic, the current wave has affected both ends of the equation.

Higher prices siphon off consumers’ disposable income as they buy food, gasoline and other items, making them less likely to buy a home. But inflation softens the blow of higher interest rates, since borrowers will pay back loans with dollars that are worth less.

That may keep buyers in the market.

On the other hand, many homeowners have an incentive to sit tight, rather than sell, which further limits the number of homes for sale, according to Taylor Marr, deputy chief economist for Redfin, a real estate brokerage.

If owners have a fixed-rate mortgage, they benefit from inflation.

Moreover, 47% of Georgia’s mortgage holders are paying rates below 4%. If they sell their home and buy another, they’d likely be taking on higher rate and increasing their monthly bill, Marr said.

So, higher mortgage rates have had an effect, but they haven’t deterred most people who want to buy a home, he said.

“There are fewer online searches for homes and fewer tours scheduled,” Marr said. “But that said, the temperature is still really hot. We are not seeing much of a slowdown.”


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For sale sign in Atlanta on Wednesday, May 4, 2022. Natrice Miller / natrice.miller@ajc.com)

Credit: Natrice Miller / Natrice.Miller@ajc.com

For sale sign in Atlanta on Wednesday, May 4, 2022. Natrice Miller / natrice.miller@ajc.com)

Credit: Natrice Miller / Natrice.Miller@ajc.com

caption arrowCaption
For sale sign in Atlanta on Wednesday, May 4, 2022. Natrice Miller / natrice.miller@ajc.com)

Credit: Natrice Miller / Natrice.Miller@ajc.com

Credit: Natrice Miller / Natrice.Miller@ajc.com

Average mortgage rate*

First week of May: 5.5%

Month ago: 4.8%

Year ago: 3.1%

Five years ago: 4.0%

Ten years ago: 3.9%

All-time high: 18.5% (Oct., 1981)

Average, end of April: 5.1%

Average, 2012-2022: 3.8%

Average, 2002-2012: 5.6%

Average, 1992-2002: 7.6%

Average, 1982-1992: 11.4%

Average, 1972-1982: 10.6%

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Average mortgage rates and inflation

April, 2022

Rate: 5.0%

Inflation: 8.6%

April, 2021

Rate: 3.1%

Inflation: 4.2%

April 2020

Rate: 3.3%

Inflation: 0.4%

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Atlanta housing market, recent snapshot

Median sales price: $377,000

Change in price, in past year: 20.5%

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Share of mortgages below 4%

United States: 51%

Georgia: 47%

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Share of homeowners without a mortgage

United States: 38%

Georgia: 35%

*Averages for 30-year fixed rate mortgage

Sources: Federal Reserve Bank of St. Louis, Bureau of Labor Statistics, Mortgage News Daily, Freddie Mac, Georgia Multiple Listing Service, Redfin, Bankrate

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