EVANSVILLE — Four months ago, Evansville area home buyers were seeing 30-year mortgage rates around 3.25%. The rate is now about 5%.
That bump takes an owner's monthly principal and interest payment on a $200,000 house from $870 to $1,073. Over the 30 years of the loan, that rate increase would raise the total interest payments from $113,000 to more than $186,000.
Let's be clear: A 5% mortgage rate is still low, historically speaking.
Still, the upward trajectory of mortgage rates nationwide raises questions for anyone considering buying or selling a home locally as we head into high season for home sales. How much higher will mortgage rates go? Will higher rates reduce people's appetite for buying and therefore have a chilling affect on home prices?
The markets in Southwestern Indiana and Western Kentucky continue to strongly favor sellers, but observers say escalating mortgage rates and sale prices likely will impact the market as 2022 goes on.
Advantage, seller: Buying a home in Evansville takes nerves, is not for the faint of heart
In Vanderburgh County, the average sale price rose about 3.5% last year and has shot up 12% so far this year, to $191,534.
In Warrick County, the average price climbed about 5.7% in 2021 and has grown an additional 7.6% already this year, to $273,181.
Homes in the two Indiana counties are on the market an average of 25 days.
The trendline is a little different in Henderson County, Kentucky, where the average sale price in 2021 was $183,287, with an average 22 days on market. So far this year, the average price is $182,301, with an average 27 days on market, although inventory remains low.
Some national observers are warning of a housing bubble, where demand for real estate races past supply and prices soar. The bubble can pop when supply falls back in line with demand, causing the number of home sales and the average price of homes to plummet.
That hasn't happened yet, but the combination of factors is creating a local housing market that is "tricky for all parties including buyers, sellers, Realtors, appraisers and lenders," said Jason Brown, managing broker with Pinnacle Realty Group of Evansville.
Bidding wars
For now, buyer demand in the region remains high, and sellers continue to cash in.
Warrick County natives Lauren and Logan Hayford decided to move back home in spring 2020 after a stint in San Diego. They bought a house, but after roughly a year, they chose to take advantage of a hot market by selling it and upgrading.
"We were thinking we would buy low, sell high, and it was going to be great," Lauren said.
More on local housing:Evansville area builders, real estate agents had a busy 2020; here's a look at the numbers
But the Hayfords, who now have a 1-year-old daughter, are still waiting for their upgrade. They are eyeing Newburgh area homes priced up to $450,000 and have bid from $29,000 to $35,000 above listed prices. But no luck.
They're renting a home for now.
"My husband and I have gotten first dibs on a lot of houses and still can't get them," Lauren said. "There’s nothing for us to find, even with a really strong offer."
Agents say listings in the Newburgh area, northern Vanderburgh County and a few other neighborhoods are highly coveted. The Hayfords said they love Warrick County's school system, and that's why they want to remain there.
The Hayfords "are a perfect buyer," said their agent, Kindra Hirt of F.C. Tucker Emge. "But we keep getting outbid."
The most popular listings go pending in hours.
“We are operating with less than a 30-day supply of homes,” said Donnie Dowell, an agent with Gammon Realty.
The most sought-after price point is $100,000 to $300,000.
In January, 242 properties sold in Vanderburgh and Warrick counties, with 241 moving in February and 321 in March. As of earlier this month, however, only 177 houses were available for sale in the two counties.
As the Hayfords' case shows, it’s not just first-time home buyers who are frustrated.
“Even cash buyers are sometimes having to bid up and make other concessions," Dowell said. "It’s a challenging market at all price levels and for all types of buyers.”
A Henderson agent says the same.
"We don’t have nearly enough houses to sell at this point, and the ones we do have are selling within 24 to 48 hours, usually over the asking price,” said Stephanie Chrisman with Collier & Company.
Higher rates, less buying power
Observers are watching to see when rising prices and higher mortgage rates might impact buyer demand and the scant inventory of available homes.
Concerns about inflation prompted the Fed to increase a key interest rate a quarter of a percentage point last month and forecast six more increases this year. Those moves are likely to lead to higher interest rates on home loans.
"Inflation expectations ramped up at the beginning of 2022 and haven’t stopped," said Chris Weiberg, Old National Bank senior vice president. "The Fed is ... essentially reducing the money supply in order to get inflation under control."
As mortgage rates spike, buyer motivation could decline.
At present, "there are more buyers than we have inventory," said Andy Rudolph of F.C. Tucker Emge and 2022 president of the Indiana Association of Realtors. "But I think that will start to shift as buyers’ buying power decreases."
Rudolph said a rate hike that adds, say, $100 to a family's monthly mortgage payment "is a huge difference, especially for young buyers new to the market."
Locally, the ticking up of rates isn't yet having any real impact on the demand for housing or the low inventory, said Brown.
"Current rates are still well below historic averages outside of the extraordinarily low interest rates of the last several years, which are actually the anomaly when looking back 100 years," he said.
For perspective, over the past half-century, the national average 30-year fixed mortgage rate has been as high as 18.39% in 1981 and as low as less than 3% at times in 2020 and 2021, according to the St. Louis branch of the Federal Reserve.
Brown expects the market to continue to favor sellers.
"I personally don’t see much of a change in the local real estate market in 2022 barring a catastrophic event that deeply shakes consumer confidence," he said. "However, without a relaxation of current inflation, pricing may continue to soar out of the pricing reach of many buyers looking for more affordable housing."