Republic file photo The Columbus real estate market continues to be under the influence of high interest rates and high prices, experts say.
Surging mortgage rates and lower levels of properties on the market have driven home sales in Bartholomew County to their lowest level in a decade while sale prices have continued to climb to record highs.
Data from national brokerage firm Redfin shows that a total of 782 single-family residences were sold in Bartholomew County during the first nine months of the year — down from 1,078 during the same period last year and the lowest nine-month total since 2012.
New listings of single-family residences in the county fell to 291 during the third quarter this year, down from 371 during the July-September period last year and the lowest third-quarter total on record in data going back to 2012, according to Redfin.
At the same time, the median sales price for single-family residences in Bartholomew County climbed to $270,000 in September — the third highest median sales price ever recorded in the county — and up from $224,000 the year before. In the city of Columbus, the median sales price reached $280,000 in September.
Five of the six highest monthly median sales prices in the history of the county have been recorded this year.
Experts and local Realtors say that the reflects rising mortgage rates, increasing home prices and fewer properties on the market.
Higher mortgage rates diminish the purchasing power homebuyers and can add several hundred dollars per month for borrowers, leading to fewer people being able to afford a home.
But higher mortgage rates also can dissuade existing homeowners who secured low rates over the past few years from buying a new home. That, in turn, can limit the number of homes for sale, contributing to upward pressure on home prices, even in a slowing market.
“The average price of housing is going up, and affordability is going down, which is a real issue, because people can’t afford mortgages at the higher rate,” said Steve Mohler, assistant professor of management at Indiana University – Columbus.
Mortgage rates have increased significantly along with the rising 10-year Treasury yield, which has been climbing amid expectations that the Federal Reserve will keep hiking interest rates in its bid to bring down inflation, The Associated Press reported. The 10-year yield reached its highest level since June 2008 this week.
The central bank has already increased its primary interest rate to the highest level seen since 2001, with the aim of curbing inflation. Additionally, the central bank has suggested that it might reduce interest rates less next year than previously anticipated. The prospect of enduring higher rates for an extended period has driven Treasury yields to their most elevated levels in over a decade.
The weekly average rate on a 30-year mortgage was 7.31% at the end of September, up from 6.7% about a year ago and 3% at the end of September 2021, according to mortgage buyer Freddie Mac.
Mortgage rates have continued to rise since then, reaching 7.79% the week ending Oct. 26 — the highest level since 2000, according to Freddie Mac.
Locally, the increase in interest rates and sales prices has pushed mortgage payments beyond what financial advisors say would be affordable for most Bartholomew County households. Generally, financial advisors caution against spending more than 30% of income on housing.
For instance, a 30-year mortgage with a 7.31% interest rate — the national average at the end of September — for home priced at $270,000 — the median sales price in Bartholomew County that month — would have a $2,096 monthly payment, assuming no down payment is made, according to Bankrate’s mortgage calculator.
For that monthly payment to not exceed 30% of income, a local household would need to make at least $83,840 per year. Median household income in Bartholomew County in 2021 was $71,183, according to U.S. Census Bureau estimates.
By comparison, a 30-year mortgage with a 3% interest rate — the national average at the end of September 2021 — for house priced at $225,000 — the median sales price in Bartholomew County that month — would carry a $1,162 monthly payment, barring any down payment.
For that monthly payment to not exceed 30% of income, a local household would need to make at least $46,480, well below median household income in the county.
“A year, two years ago, people were looking and saying, ‘Rents are going up so fast, owning your own home was a better deal.’ And at 3% mortgage, yes, it was (a better deal). But at 8%, it’s not,” Mohler said.
The current dynamics of the local housing market mirrors trends playing out across the country.
Sales of previously occupied U.S. homes fell in September for the eighth month in a row, matching the pre-pandemic sales pace from 10 years ago, according to wire reports.
The National Association of Realtors said last month that existing home sales fell 1.5% from August to September to a seasonally adjusted annual rate of 4.71 million. That’s slightly higher than what economists were expecting, according to FactSet.
Sales fell 23.8% from September last year, and are now at the slowest annual pace since September 2012, excluding the steep slowdown in sales that occurred in May 2020 near the start of the pandemic.
The national median home price rose 8.4% in September from a year earlier to $384,800.
While competition for homes has eased as mortgage rates have surged, it’s not unusual for sellers to receive multiple offers because there are so few properties on the market. That’s helping push home prices higher, even in a slowing market.
Locally, Laura McGurk, a Realtor at Century 21 Breeden in Columbus, said interest rates and the increased prices of homes are a big part of what has driven down sales but emphasized that the local housing market remains strong.
“I think a lot of it is the increase in home prices,” McGurk said. “…But also the interest rates and they way they are changing and fluctuating really does put a lot of people on pause.”
“Even though the number of sales is way down, our housing market is still really strong, and there is always just a set of people that just has to buy or sell, and it’s not driven by a whim or a want,” she added.
Mohler said housing permits in the Columbus metro area, which includes all of Bartholomew County, also have declined to 2019 levels, falling by more than 80 units, meaning “less future housing” in the community.
“All this obviously has a negative impact on housing overall in Columbus,” Mohler said. “…Fewer and fewer new homes is not good, and housing is still in short supply in Columbus.”
But for now, only time will tell how long interest rates will stay high, experts said.
On Wednesday, the Federal Reserve kept its key short-term interest rate unchanged for a second straight time but left the door open to further rate hikes if inflation pressures should accelerate in the months ahead, according to wire reports.
The Fed said in a statement after its latest meeting that it would keep its benchmark rate at about 5.4%, its highest level in 22 years. Since launching the most aggressive series of rate hikes in four decades in March 2022 to fight inflation, the Fed has pulled back and has now raised rates only once since May.
“It looks like the Federal Reserve may be having the impact that they chose to,” Mohler said. “…They wanted to slow down demand.”
“The Federal Reserve keeps saying they’re going to keep interest rates higher for a longer, extended period of time to fight inflation. I’ll take them at their word for it right now,” Mohler added. “…If we move into a recession, the Federal Reserve will have to take some action.”
