Surging mortgage rates have little effect on Lincoln real estate market | Local

“Rising interest rates will reduce demand for housing in the coming months,” Eric Thompson, director of the Bureau of Business Research, said recently.

Another potential effect of rising mortgage rates is declining home prices.

Most people buying homes need to get a mortgage, meaning the decision on what they can afford is based more on the monthly payment than the actual price of a house.

When interest rates go up, they make the same house more expensive.

For example, the average rate on a 30-year mortgage at the start of the year was 3.2%. For a $200,000 loan at that rate, the monthly principal and interest payment would be approximately $865. By last week, the average 30-year rate had risen to 5.1%, which adds about $220 a month to the payment for that same $200,000 loan.

Rich Rodenburg with Coldwell Banker NHS Real Estate said he has seen some potential buyers scale back their price range because of higher rates.

But the possibility of declining prices remains a theoretical at this point, at least in Lincoln.

So far this year, prices are up compared with last year — 11% for existing homes and nearly 20% for new homes.

Ben Barrett, a branch manager for Belay Bank Mortgage, said he doesn’t see the current trajectory, where buyers are often making offers well over asking price, as sustainable.

“But there is a lot of underlying strength to the real estate market that will prevent a collapse in home prices,” he said in an email.

Barrett said there are a number of factors that will keep the market from experiencing a crash similar to what happened in the mid-2000s, including buyers who are in better financial shape and tougher mortgage underwriting.

Freddie Mac, a quasi-governmental entity that buys mortgages on the secondary market, believes there will be very little change in the market for mortgages to purchase homes.

In a recent quarterly forecast, it predicted home purchase mortgage originations will grow from $1.9 trillion last year to $2.1 trillion this year, and to $2.2 trillion in 2023.

But the forecast is not good for the refinance market.

In the same forecast, Freddie Mac predicts refinance mortgage originations will drop by two-thirds, from $2.8 trillion last year to $960 billion this year and $535 billion next year.

Most people who bought homes in the past few years got low interest rates, and many existing homeowners took the opportunity to refinance loans at rates of 4% or lower.

In fact, a recent report from online real estate website Redfin estimates that more than half of homeowners with mortgages have rates below 4%.

That means there’s very little interest in refinancing mortgages with rates above 5%, Barrett said.

“It may make sense for a debt consolidation with these rates if they are getting out from under higher-rate consumer debts, or if the homeowner decides to stay in their current home another 10 years and use a cash-out to do a major remodel project with their equity position so strong right now,” he said.