Home interest rates across the country are climbing on news that the U.S. Federal Reserve plans to hike rates in a bid to curb inflation, but experts say the trend is unlikely to do much. something to dampen the real estate market in Fort Bend County.
Fort Bend is one of the fastest growing counties in the nation, growing from a population of about 585,375 in 2010 to about 822,779 in 2020, according to U.S. Census Bureau figures.
“The market is the hottest it’s ever been, especially in Fort Bend County,” said Missouri City-based commercial realtor Kevin Ries, an expert on the county’s commercial and residential markets. “It’s because of all the conveniences. So the caveat is that when you raise rates, you are reducing what elements of the population can afford. For example, if you have already qualified for a $250,000 mortgage, the upside could drop you to $225,000.
Earlier this month, the US Federal Reserve raised interest rates by half a percentage point – the first increase in more than two decades – to fight inflation, according to a CNN Business report. . Federal Reserve trustees hinted that more increases could be on the horizon, according to the article.
On a practical level, this will have shorter-term consequences for the residential real estate market compared to the commercial market, Riles said.
Essentially, there are three parts to every loan rate offered by a mortgage company, Riles explained. The first part is the base rate, the second takes into account the risk of the loan and the third part is where companies generate their profits, he said.
Rate hikes affect the base portion of the rate, Riles said. But while residential rates can be locked in for the life of a loan, commercial rates are adjusted every five years, he said.
Therefore, they are less dependent on rapid changes in the market, like what is happening now, he said.
“From what I’ve seen, there’s so much pent-up demand in Fort Bend County — there are just more buyers than there are homes for sale,” Riles said.
Dave Krichmar, a Houston-based mortgage banker, agreed with Riles’ assessment of the county’s market.
“What you’re starting to see is a cooling of the market, where before you were getting maybe 10 to 12 housing offers, that number has slowly come down,” he said.
But because there is a shortage of homes and the county’s average household income is so high, homes will likely continue to sell, he said.
The biggest open question is how developers might react to a cooling market, Krichmar said.
“Because this is largely a supply issue, that means that while, yes, you might see some cooling from where the market was, that will help values to stay consistent with the drop,” Krichmar said.
Local real estate experts aren’t the only ones noticing a shortage of homes in Fort Bend County.
More than 10,000 new homes are expected to come on the market in 2022, up from about 9,350 in 2021, an increase of about 21.35%, according to a report prepared by the Fort Bend County Central Assessment District.
But demand far exceeds new homes, according to the report.
The Central Assessment District is a subdivision of the state that assesses property in a taxing unit within district boundaries, according to the district’s website. It uses a standard formula to calculate the appraised value of a home.
Yet today’s buyers are seeing dramatically higher interest rates than someone who bought a home as recently as January.
Those looking for homes today should be prepared for rates in the 5% range, down from around 3%, Krichmar said.
“Eventually everyone adapts, but it happens so quickly, I think there is a shock,” he said.
Federal experts predict rates could continue to rise throughout the year and could reach 6% and higher, Krichmar said.