Pumping the brakes on the local housing market

Nov. 5—PENDLETON — When the time came to sell her mother's condominium, Carole Edwards was cautiously optimistic that a buyer would surface quickly.

She was also aware, however, that the local housing market — mirroring several nationwide trends — is becoming increasingly challenging for buyers and sellers alike. She pointed to nearby neighbors also trying to sell their condo as evidence.

"They're around the corner from my mom, and they're sitting there (with) the interest rates going up, so it's going to cost whomever a lot more," Edwards said.

Last week, leading mortgage buyer Freddie Mac reported that the average rate on a 30-year mortgage rose to 7.08%. It's the first time since April 2002 that the average rate has been above 7%, and the rate is more than double what it was a year ago at this time.

The Federal Reserve has raised its benchmark lending rate six times this year — including an unprecedented four consecutive 0.75 percentage point increases — and while mortgage rates aren't necessarily tied to Fed actions, those rates tend to follow suit.

The result, economists say, has been a precipitous decline in buying power, to the point where many potential homebuyers are choosing to stay on the sidelines.

"Obviously we're not in the market we were six months ago," said Heather Upton, owner of the Real Estate Pros of Keller Williams in Pendleton. "I told my team this week, I said, 'Buyers, and even sellers, have their brakes on right now, because they're trying to figure out how to navigate this market.' We're in a market we've never, ever, ever come close to experiencing."

In Madison County, several metrics tracked by the MIBOR Realtor Association declined in September, the most recent month for which data is available. Notably, the median sales price of $173,000 was down 11.3% from August. Homes are staying on the market longer as well — about 33 days on average, compared to 23 days in August.

Upton pointed to the situation of one client she worked with recently, who put a house in the Summerlake subdivision near Ingalls up for sale with an initial asking price of $330,000. Within 45 days, Upton said, they were forced to drop that price by $25,000.

"It's super, super important that when we go to meet with sellers that we coach them on exactly what their competition is and what the market is exactly right now," Upton said. "It's like sticker shock (for buyers), but we're doing sticker shock in reverse now."

Some economists believe that lenders still hold fresh memories of the financial crisis of 2008, which was fueled by cheap credit and lax lending standards and led to banks holding trillions of dollars in worthless mortgage investments.

"We're trying to prevent a (housing) bubble, so that's one of the consequences of inflation, that you would see a bubble," said Michael Hicks, an economist at Ball State University and director of its Center for Business and Economic Research. "We've had some unrealistic interest rates, so what the Fed is now doing is returning them to a more stable long-term equilibrium. This is a market outcome that is absolutely necessary."

Upton also noted recent comments from Gary Keller, co-founder of the Keller Williams real estate company, which paint a bleak picture of the current homebuying — and home selling — landscape. Keller said during a panel discussion that overall real estate transactions in the U.S. this year are on track to register their second biggest annual decline on record, behind only 2008, which was the height of the Great Recession.

"I'm not overly confident right now," Upton said. "Consumers are not doing anything. You can't force someone to buy or sell a house. All you can do is show them what's going on and see if it makes sense for them. For some people, it doesn't. Right now, it's just not making a lot of sense, and that's scary."

Follow Andy Knight on Twitter

@Andrew_J_Knight,

or call 765-640-4809.