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Springfield, MO

Seller’s Market: Low inventory, rising interest rates spike area demand for homes

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Low inventory, higher interest rates and rising home prices are converging this spring, creating a seller’s market and demanding quick action from homebuyers.

In April, compared with the prior year, there were 20 percent fewer residential properties on the market in Springfield, according to Realtor.com, while median home prices rose 8 percent.

National mortgage buyer Freddie Mac has interest rates at 4.5 percent for a 30-year mortgage, which is more than half a percentage point increase on the year.

And additional interest rate increases could be on the horizon. The Federal Reserve increased the federal funds rate a quarter percent in March, and industry economists say another increase is expected in June.

“I think some sellers are hesitant because they may feel like they missed the fantastic market. But really from a seller’s standpoint, now’s the time to be on the market,” said Jeff Parker, managing broker with Murney Associates, Realtors. “If you’re a buyer, it’s probably time to take action.”

Parker expects home prices to rise another 4-6 percent by next spring.

Nationwide, mortgage rates rose steadily throughout the month of April, according to Freddie Mac, but saw a reprieve early May.

“The increase in mortgage rates is long overdue,” said Aaron Jernigan, OakStar Bank’s president of mortgage banking. “Interest rates, historically, are still really low.”

In the early 1980s, rates were as high as 18.5 percent, according to Freddie Mac, and 10 years ago rates were at 6.6 percent. The lowest 30-year interest rate was 3.3 percent in late 2012.

Jernigan expects interest rates to escalate throughout the year.

“It’s obviously a seller’s market just because of the lack of inventory,” Jernigan said. “And it’s an outstanding time to buy – rates are still low. The biggest thing for first-time homebuyers right now is just to be prepared that houses are moving really quickly.”

Across the state, the average time on the market is 71 days through March, down from 118 days in the first quarter last year, according to Missouri Realtors data.

At OakStar Bank, Jernigan said first-quarter 2018 mortgage volume is up 2 percent to $62.8 million compared with first-quarter 2017.

He said the popularity of jumbo loans spiked in the first quarter. Jumbo loans exceed the Federal Housing Finance Agency’s mortgage loan limit of $453,100 in Missouri and have more stringent qualifications for down payment and credit scores than conventional or government mortgages.

John Blair, a regional mortgage sales manager for Commerce Bancshares Inc., said average residential sale prices in Springfield went up 4 percent from March to April, corresponding to the lack of listings.

He said St. Louis has about 12,000 property listings, Kansas City has 7,500 and Springfield, notably smaller, has a little over 1,500. The latest data from Missouri Realtors shows Springfield makes up 7.7 percent of statewide home purchases.

“Spring is the buying season,” Blair said. “We’ve seen an increase in applications and an increase in first-time buyers. The inventory is one of the struggles that we all see.”

According to GSBOR, the averaging selling price in Springfield in March was $164,000.

“If you list something between $100,000 and $200,000, and it’s priced right, it’s going to have multiple offers and sell quickly,” Parker said.

Blair said homeowners see the amount of home they can afford decrease as interest rates and home prices rise. “The forecast is for the interest rates to go up,” he said. “That starts to affect how much house you can buy.”

Last July, the Federal National Mortgage Association, aka Fannie Mae, raised the accepted debt-to-income ratio to 50 percent from 45 percent. This has many homeowners stretching beyond their means to buy the houses they want.

CoreLogic, which tracks real estate and mortgage trends, found that one in five conventional mortgages last winter were issued to those with a DTI ratio of more than 45 percent, the highest since the housing crisis.

“We’ve seen an increase in DTI just across the board,” Jernigan said. “However, credit standards have increased as well.”

Jernigan said loans at OakStar are processed through an automated underwriting system, following standard industry practice, and loan officers work with potential borrowers to determine affordability.

“Especially with first-time homebuyers, we spend a lot of time counseling,” he said.

Meanwhile, online mortgage lenders are growing in popularity.

In the financial technologies industry, lending market share has grown to 32 percent by mid-2017, up from just 4 percent of the market in 2012, according to consumer credit agency TransUnion.

Isolating online mortgage applications and approvals, the New York Federal Reserve finds fintech market share grew to 8 percent in 2016 from 2 percent in 2010.

In the study published in February, the N.Y. Federal Reserve determined fintech lenders processed mortgages 20 percent faster than traditional lenders and default rates were 25 percent lower. The study also showed online lenders don’t typically offer better interest rates.

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