Annah Bailey, a loan officer with Homestar Financial Corp’s Marietta office, said her business slowed down last month.
Bailey’s closings declined in April, and she saw a complete void of activity in new loan applications. Those fell off a cliff, she said.
“It was silent,” Bailey told Atlanta Business Chronicle. “Phone’s not ringing. No applications for a month.”
Falling demand for applications came as the average interest on a 30-year, fixed-rate mortgage in metro Atlanta exceeded 5% for the first time in a decade, according to data from industry analytics firm Black Knight. At the same time, record home values continued to rise. The metro area’s median price plowed through the $400,000 barrier for the first time last month.
With metro Atlanta’s housing market carrying a new level of sticker shock, the number of mortgages written for home purchases declined by 20% from March to April, according to Black Knight. Home sales in April were down 21% compared to the same month in 2021, per data from First Multiple Listing Service.
The combination of eye-watering rates and prices is forcing many would-be buyers to the sidelines.
The U.S. Federal Reserve is jacking up interest rates as it attempts to extinguish inflation that is at a 40-year peak. Earlier this month, the Fed hiked rates half of a percentage point, the largest raise since 2000. It projects more increases over the course of 2022.
Rising interest rates would cool home prices in a normal market due to their effect on demand. That has not happened so far this year because housing inventory is so low. Competition for homes remains high, and listings are consistently going to buyers with the annual incomes or cash in hand to win intense bidding wars.
So far, higher rates are only serving to price out more potential buyers at the bottom of the market. The Federal Reserve Bank of Atlanta deems home ownership to be “unaffordable” locally because annual mortgage payments for the metro area’s median-priced home now cost more than 30% of the median household income.
Beleaguered home shoppers with less-than-pristine credit scores face another hurdle: higher closing costs through lender fees. Someone with a credit score less than 740 — a rating that credit-reporting company Experian considers to be “very good” — likely will pay an extra $5,000 or more up front on a 30-year, fixed-rate loan at closing, Bailey said.
“That is a huge impact, honestly more than the rate,” she said.
Bailey said that the current lull in mortgage demand does not surprise her. Anytime there’s a shock to the economy, such as surging inflation or rapidly rising interest rates, potential homebuyers tend to pause and reassess the situation.
But Atlanta continues to be a hot destination for corporate expansions and individuals relocating from bigger cities and more expensive markets. The cost of owning a home is still cheaper than renting, and monthly rents are rising at an astronomical rate, too.
Bailey believes she could be in for a slower summer, but she expects to make up for it in the second half of the year when demand picks back up.
“I think people will continue moving and buying and doing what they need to do for their families,” Bailey said. “Life goes on.”
A breakdown of metro Atlanta sales by price in April:
- The number of homes bought for $600,000 or more increased 20% year over year.
- Home purchases between $350,000 and $600,000 were up 3%.
- Purchases between $200,000 and $350,000 declined 43%.
- Purchases under $200,000 were essentially non-existent. They were down 70%. Of nearly 6,000 homes bought across metro Atlanta last month, only 249 were secured for less than $200,000.