Rising mortgage rates unlikely to dampen Boston real estate
Mortgage rates are on a post-election spike that some observers said marks the end of the historically low rates that homeowners and house hunters have been enjoying for the past five years.
Rates for 30-year loans this week edged over 4 percent for the first time in 2016, and are at the highest in nearly a year and a half, according to mortgage-finance company Freddie Mac.
In just a few short weeks, mortgage rates jumped more than a half percentage point, driven by concern in the bond market that President-elect Donald Trump’s tax-cut and spending plans will heat up inflation and allow the Federal Reserve Bank to tighten the money supply. Indeed, with the Fed itself expected to finally begin raising its benchmark interest rate in December, industry analysts predicted it will be a long time before mortgage rates return to the 3 percent mark.
In the short run, mortgage rates in the 4 percent range are unlikely to immediately affect the Boston area real estate market, according to industry executives and economists. There is such strong demand, and so few properties available, these people said, that rates at this level are not likely to deter buyers anxious to finally lock in on a home.
“Until it hits 5, I don’t really predict a big hit,” said Gary Rogers, who owns the RE/Max On the Charles brokerage firm in Waltham. “We’re still at historic lows. Rates start at 4 or 5 percent and historically that’s pretty damn low.”
It’s fairly typical for the market to fluctuate after an election, said Aaron Jodka, director of research for Colliers International in Boston. On the commercial real estate side of things, Jodka said, activity slowed down a bit after the election as lenders take on a wait-and-see approach. But even as rates creep up, they remain “very low,” Jodka said.
“So while directionally they are moving up, they haven’t moved up to a level that should cause a structural concern with the market,” he said. “It’s caused some uncertainty and folks want to see how it shakes down.”
Aaron Terrazas, senior economist at real estate website Zillow, predicted mortgage rates will continue to climb, but “very slowly over the next year and a half. I don’t think we’re going to see mortgage rates in 2017 upwards of 5 percent; I think they’ll be in the 4’s throughout next year.”
While higher borrowing rates will make it more costly to own homes here, they are unlikely to act as a check on prices, said Alan Clayton-Matthews, an associate professor of economics and public policy at Northeastern University. The median price for a single-family home or condo in greater Boston is a little more than $500,000. And Clayton-Matthews predicted those prices will continue to rise so long as the local economy, among the fastest-growing in the country, continues to expand.
“We’ve had booming housing markets where rates were 6 percent up to 10 percent,” Clayton-Matthews said, “so I don’t think it’s going to kill the market in the Greater Boston area.”
Other analysts point out that Boston, with its large pool of high-income buyers and chronic shortage of housing, often doesn’t move in sync with other markets around the country. That could work in our favor when mortgage rates go up.
“In our experience, downtown Boston, Cambridge, and now parts of Somerville seem to hold value irrespective of trends in the broader housing market,” Adam Welling, Boston-area market manager for national real estate brokerage Redfin, said in an e-mail. “Last decade, in the worst housing crash we are likely to see in our lifetimes, we saw property values plateau, but not decrease in those areas.”