North Texas homebuyers feel pressure from higher mortgage rates

Texas Compression: A series examining the high cost of high growth in North Texas.

Mortgage rates are on the rise, marking the end of the record highs of the past two years. This causes a perfect storm for buyers when coupled with rising house prices and headline inflation.

The average rate on a 30-year fixed-rate mortgage hit 5% for the first time in more than a decade in April and has since risen to 5.3% as of May 12, according to Freddie Mac.

At December’s rate of 3.11% with a 20% down payment, principal and interest for a $350,000 home would have been $1,197 per month before taxes and insurance, according to an estimate from Bankrate.

At 5.3%, a house at the same price would have a monthly payment of $1,554. That’s a difference of $357 in less than five months.

The median selling price of a home in North Texas has reached $400,000, according to the Texas A&M University’s Texas Real Estate Research Center. Last May, the home at the median price of $340,000 with an interest rate of 3% would have had a monthly payment of $1,146. Today, a median-priced home would cost $474 more, or $1,776 per month.

Mortgage rates have been higher in previous decades, but it is the combination of rates with the competitive market that is proving difficult. Jennifer Salazar, senior credit officer for Fairway Independent Mortgage Corp. at Garland., said first-time home buyers are feeling the most pressure and some have been entirely sold out.

“We all have to have tough conversations, and I don’t think real estate agents or lenders know how to say you’re in a market where you may never be able to buy something,” Salazar said. “I don’t think anyone really knows how to say that in a nice way right now.”

A recent Bank of America survey found that to secure a home, the majority of potential buyers are willing to reconsider their neighborhood and distance from entertainment, restaurants and shopping.

“Customers have to decide what they’re willing to sacrifice to be able to afford that higher payment,” said Greg Howe, vice president and loan market leader for Bank of America in Dallas-Fort Worth.

“As those rates go up, it reduces your purchasing power in a way that – in a market like this, where you add these other variables – that can have a huge impact,” said Bryan Pacholski, director senior general of Compass in Dallas.

The Mortgage Bankers Association expects rates “to stabilize near current levels,” the organization’s chief economist, Mike Fratantoni, said in a May 5 statement. This would be good news for buyers in the competitive North Texas market.

Maryam Hamadu, a first-time homebuyer who works in the health insurance industry, had to extend her search to Wylie and Princeton to stay within her budget of $450,000 or less. She halted her search from February to December last year, frustrated that she couldn’t find a home she liked in her price range in or around Plano.

“I realized that I couldn’t afford to have a place here on my own,” Hamadu said.

Maryam Hamadu, a tenant in Plano, has been on hold looking for housing for most of the past year. She has since restarted her search to avoid rising mortgage rates and house prices.(Anja Schlein)

When she began her research last January, mortgage rates were below 3%. To anticipate further increases in tariffs and house prices, she decided to leave again in winter.

She also focuses on new builds — even with the possibility of being on a waiting list for up to a year — to avoid the unpredictability of bidding on a home and paying way above the asking price.

“I decided I had to start over before things got worse,” Hamadu said.

Bank of America found that 40% of buyers say too high interest rates are one reason they might be hesitant to buy. Yet the low supply of homes on the market and high prices may be more important factors in the minds of many buyers. Howe said the tariffs haven’t had much of an impact on overall demand in his office.

“We have a lot of customers who are still interested in buying,” Howe said. “The biggest problem they’re having right now is just getting their offer accepted, because there just isn’t enough supply in the market.”

Another first-time buyer, Kevin Turner, said he’s made offers on about 20 homes since last year and encountered situations where he’s paying $30,000 to $50,000 more than the asking price was not enough. Rising mortgage rates haven’t affected his ability or desire to buy so far, but he said that could change in the next six months.

“But if anything, if the interest rate goes up, there’s a part of me that’s going, well, maybe that will slow the competition down a bit,” he said. “I didn’t see that, though.”

Turner said he regretted not jumping into the market in 2020 when rates were very low and prices weren’t as intense – a suggestion from his girlfriend, who predicted the market would explode l ‘next year.

“She’s not a financial or real estate expert, but man, she called it,” Turner said. “I probably should have listened to him.”

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