Local real estate agents just came off what many say was their best sales year ever, and they say conditions are right for another banner year.
Mortgage rates remain near historic lows, and pent-up demand remains after five years of a sluggish economy.
That demand led to a barrage of multiple offers on desirable properties last year, and an improving economy could extend that phenomenon – a blessing for sellers, but a curse for buyers.
“I think we’re going to see the same really strong market,” said Jean-Michel Reed, a broker at Gurney Becker & Bourne. “There’s all this pent-up demand that is not going to go away, just because the supply is still constricted in our market.”
Mortgage rates have been rising slowly, a fact that could be a concern for some buyers and a spur for others.
“Just the fact that they’ve started to tick up will spur buyers to want to get in before it gets too high,” said Robyn Cannata, a broker at Hunt Real Estate Corp. “You don’t want to lose out on the low interest rates.”
The Western New York housing market has been fueled by a combination of low interest rates, fewer houses for sale, improving consumer confidence and an economic upswing in Buffalo driven by billions of dollars of investment in downtown and the Buffalo Niagara Medical Campus.
As a result, home prices here have actually appreciated by 16 percent – outpacing every other major city in the country – since the housing market peaked nationally seven years ago.
The lack of inventory helped drive prices up, with the number of homes on the market about 12 percent below the previous year. The region saw a growing number of people interested in buying, but fewer wanting to sell.
And that local demand hasn’t dissipated.
“There’s definitely buyers out there that want to buy, but there’s not good inventory. And when you see a decent home come on the market, you’re seeing multiple offers,” said Thomas J. Liolos, branch manager for mortgage banker Paragon Home Loans in Buffalo.
Rates force buyers
Given the increasing signs of the economy is strengthening, however, those unusually low rates may not last long.
“We got a ton of calls from people looking to buy right away. They’re worried about the interest rates,” said Rafael Toledo, a broker at Nothnagle Realtors.
But brokers say that threat actually could add fuel to the fire in the short term. Last spring, rates rose by a full percentage point amid talk by the Federal Reserve that it might start pulling back on its stimulus efforts.
Yet they remained below 5 percent, and sales remained strong for the rest of the year, in part because buyers and sellers who had been on the sidelines wanted to act before they lost out.
“What we’ve seen is as the rates begin to climb, buyers become more aggressive,” said Hunt broker Robert Blake. “They want to lock in now, before the rates go any higher.”
That’s likely to continue this year. The Federal Reserve recently said it still plans to keep its key short-term interest rates low for longer than most observers expected.
“We expect interest rates to rise slightly in 2014, but not to a level that significantly impacts home buying,” said Errol Samuelson, president of Realtor.com, by email.
Such a gradual increase makes a big difference, said Greg McBride, vice president and senior financial analyst at Bankrate.com in North Palm Beach, Fla.
“A lot of it has to do with how quickly rates rise,” he said.
“We saw a huge jump in mortgage rates in the middle part of 2013, and that did take a little bit of a bite out of demand. In contrast, in 2014, I expect the rates will increase at a more modest pace, so that should not undermine the recovery in housing or the overall economy.”
It’s not clear at what point home sales would be affected, either. Rates certainly could tick up to 5 percent or even slightly higher in the coming year, brokers and other observers agree. But they were at nearly 6.8 percent in July 2006 – just seven years ago – and they were higher than 8 percent in 2000. And even those rates were far less expensive than what older brokers and homeowners remember from the 1980s, when rates were above 10 percent and as high as almost 18 percent in 1981.
“Even if rates go up, they’re not going to go up astronomically, and they’re still ridiculously low. I remember when 6 percent was considered phenomenal,” Reed said.
An increase in rates brings an increase in the long-term cost of the home, and that may reduce the number of borrowers who can qualify for a loan. When rates rise enough that buyers can no longer afford the house they want, brokers say, that’s when the market will slow.
“That mortgage rate really affects how much you can afford,” Cannata said. “I don’t think that one point really scares people. If it goes up another point or point and a half, that’s two points higher than the low, and it might really start to make a difference.”
So what are Realtors telling their clients? No surprise there.
“I do my absolute best to convince every one of my clients that now is the time to act,” Blake said. “Rates can go up in a day. You may not be able to afford this home at the exact same price next week.”