Massachusetts Home Buyer Guide

A couple of weeks ago two Buyers Brokers Only, LLC home buyers closed on Massachusetts homes on consecutive days with fixed, 30-year mortgage interest rates of less than 3.5 percent. One couple were first-time home buyers and the other couple were moving to a newer, more modern, home.

Mortgage interest rates may not be that low again in their lifetime; however, not everyone thinks it is a bad thing for the real estate market, especially hot markets, such as in Greater Boston, where home prices have been rapidly rising over the past year and real estate inventory is tight.  

On June 27, 2013 alone, U.S. mortgage interest rates increased more than one-half percent, CNN Money reported. Interest rates on fixed, 30-year mortgages rose for the ninth week in a row to an average of 4.68 percent in the week ended July 5, 2013, the Mortgage Bankers Association (MBA) reported July 10, 2013. Home buyers haven't seen interest rates at these levels in about two years. The interest rates for some first-time home buyer programs, such as the MassHousing no mortgage insurance loan, have crossed the 5 percent threshold. 

A survey by Trulia, an online real estate site, indicated that rising mortgage interests rates are the biggest worry for prospective home buyers, even bigger than rising home prices and lack of inventory, the Wall Street Journal reported July 10, 2013. On a $350,000 loan, the difference in monthly principal and interest payment between a 3.5 percent and 4.5 percent interest rate is about $200. 

Many real estate and mortgage professionals expected home buyers, hoping to beat any further rate increases, to rush into the real estate market as rates increased; however, the MBA reported purchase loan applications declined 3.1 percent in the week ended July 5, 2013.

Higher mortgage interest rates may sound like bad news for Massachusetts home buyers, especially first-time home buyers; however, there is a silver lining. Higher interest rates may cool a highly competitive and, at times, frustrating real estate market.

The strongly rebounding Massachusetts real estate market has spurred bidding wars, chopped away at inventory and provoked home buyers to make rash decisions. Massachusetts home buyers have endured much aggravation because of the hyper-competitive Great Boston real estate market. 

Rising interest rates tend to make properties less profitable for investors, at least those investors that aren't paying with cash, so competition from investors may ease over the coming months. On the other hand, increasing home prices will move previously underwater homeowners into the black, allowing them to sell their homes. That will increase inventory. As a result of increased inventory, more homeowners, no longer fearing that they won't be able to find a new home in a competitive market after selling their current home, may finally decide to put their homes on the market, further lessening the tight inventory environment.  

Those home buyers hoping higher mortgage interest rates will slow down rapidly rising home prices may be disappointed.  TheStreet.com reported July 8, 2013 that rising interest rates don't have much impact on home prices. Housing and mortgage researchers have found, historically, that rising home prices and rising interest rates tend to go hand-in-hand in the U.S. It makes sense, since both are a sign of an improving economy. 

The following are just a sample of Massachusetts cities and towns that saw double-digit, year-over-year median price increases for single-family homes during the first quarter of 2013. The Massachusetts Association of Realtors provided the data. 

Town/City – Q1 2013 Increase

Amesbury – – 12.5%

Billerica – – 21.4%

Carver – – 16.1%

Dracut – – 14.7%

Everett – – 16.4%

Framingham – – 10.3%

Georgetown – – 35.1%

Haverhill – – 25.6%

Ipswich – – 28.2%

Kingston – – 29.8%

Lexington – – 27.2%

Medford – – 16.4%

Needham – – 14.0%

Orleans – – 61.7%

Pepperell – – 18.6%

Randolph – – 12.5%

Sharon – – 13.5%

Tyngsborough – – 47.4%

Uxbridge – – 10.4%

Winchester – – 18.1%

So are higher mortgage interest rates going to help or hurt Massachusetts first-time home buyers? Certainly, homes will be less affordable with higher interest rates, and that isn't good news, but rates are still historically low and Massachusetts home prices haven't completely recovered from the multi-year real estate slump yet. One could make an argument that rising home prices and mortgage interest rates are a sign that the housing market in Massachusetts and around the United States is settling into a long-term period of stability. That's good for the economy and maybe for future home buyers too.