Here’s how rising interest rates are impacting Whatcom’s housing market
Rising interest rates meant to curb inflation appears to also be cooling off Whatcom County’s hot real estate market.
As the cost for mortgage loans steadily climb after the Federal Reserve raised interest rates, Whatcom’s affordability index continues to drop. Braden Gustafson, a local appraiser, calculated Whatcom’s affordability index to be at 53.6, which is the lowest level in at least the past two decades. The affordability index measures the ability of a middle-income family to carry the mortgage payments on a median-price home at current interest rates. Anything below 100 means it is less affordable for a typical middle-income family.
“Essentially, a typical household in Whatcom County can afford a $320,000 home. The median price of a home in Whatcom County is almost double that, at $610,000,” said Gustafson in an email.
National organizations are sounding the alarm about the impact this will have on those looking for a home.
“The Fed has no choice but to raise rates to address inflation. Higher mortgage rates are a necessary but bitter pill. However, without measures to address housing shortages, higher interest rates will only hurt low- and moderate-income families without having a material impact on home price inflation,” said David M. Dworkin, president and CEO of the National Housing Conference.
In Whatcom County, some potential buyers are putting their purchase plans on hold because of higher interest rates, said Kena Brashear, managing broker at The Mujat Group Realtors. Brashear said as potential buyers ponder whether to wait, she’s encouraging them to run the numbers, comparing what rental rates are compared to a monthly mortgage payment. She’s also encouraging potential homebuyers to check with banks to see if there are options that could help, such as locking in rates or adjustable-rate mortgages.
While the 30-year fixed mortgage loan is still the most common loan at WECU, there’s definitely been more interest lately in adjustable-rate mortgages, said Paul Cover, real estate loan origination supervisor for the Whatcom credit union.
“We believe those (adjustable-rate loan) conversations will continue to grow throughout this year as people look for ways to blunt some of the impact of increasing interest rates,” Cover said in an email. He noted that some are also looking at switching from 15-year mortgages to 30-year mortgages even at the higher rate because it would provide some relief to the monthly budget as other items become more expensive.
This climate of rising interest rates is making it tough for potential homebuyers who are pre-approved and are looking to buy. As rates increase, some are pushed out of the pre-approved category to where they no longer qualify. Those who do fall out of the pre-approval category shouldn’t give up, Cover said.
“Just because it didn’t work today, doesn’t mean it won’t work tomorrow or thinking differently to get where you want to go. In some cases, it may also mean exploring other property types, areas, loan types and options to see if they can be approved with a USDA loan or other product that may be different from what they originally envisioned,” Cover said.
As for Whatcom’s real estate market, there isn’t an expectation that this will lead to a significant drop in prices. Even with fewer buyers in the market, inventory is so low that there is demand for the few places that are for sale, Gustafson said. He expects things to slow down and price hikes to moderate, but not go down for now.
