Mortgage rates up, Johnson County home inventory remains low

Despite mortgage rates rising to levels not seen since 2011, low housing inventory remains the biggest obstacle to homebuyers in Johnson County.

The Federal Reserve is taking action to raise interest rates to possibly prevent a recession and control inflation. Earlier this year, the Federal Reserve raised its benchmark interest rate by a quarter-point in an attempt to cool down the economy. The benchmark rate has been kept near zero since the pandemic recession struck two years ago, the central bank has signaled potentially up to seven additional rate hikes this year.

The Fed’s actions effect mortgage rates because the rates are primarily based on mortgage-backed securities, which often move similarly to U.S. Treasury rates, such as the 10-year treasury yield. If the 10-year yield changes significantly, so do mortgage rates.

“When things happen in the economy, (the yield) is going to dictate that,” explained Dave Coffey, president and CEO of Franklin-based Mutual Savings Bank. “Hopefully things will calm down soon, and interest rates won’t continue to rise.”

Mortgage rate impact

Last week, Freddie Mac, a government-sponsored secondary mortgage company, reported that the average 30-year fixed mortgage rate hit 5% — a 1.96% year-to-year increase from 2021. The average 15-year fixed mortgage rate was 4.17%, a 1.82% increase year-to-year, data shows.

The last time the 30-year fixed average was above 5% was in February 2011, data shows.

While the rates are over 4%, they are still at a relative historic low compared to the rates seen in the 1980s, Coffey said. The 30-year fixed-rate mortgage average hit its highest level in the last 30 years in October 1981, when it hit 18.53%, according to Federal Reserve data.

Higher mortgage rates present challenges for some homebuyers. Some could lose their mortgage eligibility, while others could be deterred because higher borrowing costs will make their payments less affordable, Coffey said.

In Johnson County, the median sale price for a single-family home in March was $292,750. If a borrower took on a $300,000 30-year fixed-rate mortgage at a 3.5% rate and put down a $20,000 down payment, they would have an estimated monthly mortgage payment of $1,257.33. If they took out a mortgage at the current average rate, 5%, and put down a $20,000 down payment, they would have an estimated monthly mortgage payment of $1,503.10, calculations show.

This calculation doesn’t include closing costs and loan origination fees.

Mutual Savings Bank has seen a slowdown in mortgage applications. Whenever interest rates rise, people tend to get nervous, which leads to a slow down in applications. The slowdown in applications could be happening for a variety of reasons, local experts say.

Some customers might be waiting to refinance their current mortgage until interest rates have stabilized, Coffey said.

Another reason applications could be down is home sales. Housing inventory inventory in the county is very low, so purchases are down, Coffey said.

Greenwood realtor Ron Rose has yet to see an immediate effect from the rising interest rates on the local housing market. But as rates continue to rise, he expects it to affect the market, he said.

“It will have an immediate impact. There is still such a housing shortage and people are trying to get the best rate they can at the moment,” Rose said.

Low inventory presents obstacle

The biggest obstacle to home buyers is still inventory, despite the rising rates, local experts say.

There were 83 single-family homes in Johnson County considered active inventory in March — one less than in March 2021 and far from a high of 408 in October 2019, according to data from the MIBOR Realtor Association, the professional organization representing Central Indiana realtors.

Inventory from January to March of this year has averaged around 83.6, a few points higher than the 80 homes average from the same three-month period in 2021, data shows.

Rose has seen the low inventory cause bidding wars with his clients, and some of his clients have had to make multiple offers on a single property. This time of year, the inventory usually picks up, he said.

“We haven’t seen a significant uptick in inventory yet,” Rose said. “We are going to have very few homes to choose from this year, and again this is going to cause us to have a competitive market.”

Median home sale prices have gone up significantly and are approaching $300,000. The median sale price for a single-family home in March was $292,750, an 8.4% increase from $270,000 in January. Year-to-year, median sale prices have gone up by 19.5% from March 2021 to March 2022, data shows.

Inflation has also played a part in increasing home prices, as the materials needed to build a new construction home has increased because of pandemic-related supply shortages.

Local real estate outlook

The number of Johnson County home sales closed home remained near 2021 levels for March. Last month there were 206 closed home sales, which is one higher than in 2021. To start the year, home sales were lower than 2021 levels but that picked up a bit in March. On average, there were 172.67 home sales from January to March of this year – lower than the 178.3 from the same period last year, data shows.

Home sales for the county typically peak during the summer and it is unlikely there will be record-breaking numbers this year, Rose said. Both record high sales months have occurred in recent summer months: 336 homes were sold in July 2019 and 334 in June 2021, data shows.

Rose believes that many homeowners are choosing to stay put rather than upgrade to a new home because they know they would be paying a premium in the current market, he said.

“Right now, even if they see a lot of equity in their homes, they are choosing to stay put,” Rose said.

Despite the higher rates, Coffey says it’s still affordable to buy a home right now.

“With low interest rates, even if they bump it up just a percent, people can still afford them. It’s just a different price range,” Coffey said. “Rates are still historically low, but the people who want to (buy a home) will.”

The Associated Press contributed to this report.