Tough Market: Rising Mortgage Rates Make Buying a Home More Difficult

Homes are being built in Palo Alto Groves Thursday in Brownsville. (Denise Cathey/The Brownsville Herald)

The Rio Grande Valley was already struggling with housing affordability, and now higher mortgage interest rates are making the situation worse.

That’s according to a new study from Texas A&M University’s Texas Real Estate Research Center, which shows the Metropolitan Statistical Areas (MSAs) of Brownsville-Harlingen and McAllen-Edinburg-Mission far down the list and below the l status in terms of housing affordability. . An MSA refers to a dense population core with adjacent communities linked to that core socially and economically.

The TRERC study presents the Texas Housing Affordability Index (THAI), which gives Brownsville-Harlingen a score of 1.21 for the second quarter of 2022, compared to 1.27 in the first quarter of the year and 1 .64 in 2020. McAllen-Edinburg-Mission fares less well, with a second quarter rating of 1.17 compared to 1.46 for the first quarter and 1.57 in 2020.

The THAI measures the relationship between median family income and the income needed to buy a home at the median price. A score of 1.00 means that the median family income is exactly enough to buy this house. Anything above 1.00 indicates that the median family income is more than enough to buy a house at the median price. Anything below 1.00 indicates the opposite.

Of the MSAs in the study, Austin-Round Rock, Collin County, Kerr County, and Travis County fell below 1.00 in the first through second quarters of 2022, scoring 0.96, 0, respectively. .84, 0.95 and 0.83. The MSA with the highest THAI score in the state is Wichita Falls, which scored 2.1 for the second quarter, still down from 2.64 in the first quarter of 2022 and 2.7 for 2020.

TRERC Deputy Research Economist Clare Losey Ph.D., who authored the study, said while housing remains affordable in Texas as a whole, some areas of the state are struggling, largely because mortgage interest rates have risen significantly, making it more expensive to borrow money to buy a home. One such area is the Rio Grande Valley, where historically low median family income was already a barrier to buying a home, she said.

Losey said interest rates had risen about 3 percentage points between the first and second quarters of this year, “from the lowest in the middle of the top three to the top five on average”, although rates have moved slightly higher. down since the end of June.

“The US average for the 30-year fixed rate mortgage was 5.81 at the end of June,” she said. “It has since declined to around 4.5%.”

But the general trend is still for higher rates, Losey said. Inflation and the Federal Reserve’s attempts to deal with it – by raising interest rates – are behind the escalation in mortgage interest rates. The situation makes buying or refinancing a home much less attractive compared to when mortgage rates were at historic lows, near zero due to the Fed lowering interest rates to to try to resuscitate the pandemic-stricken US economy.

Losey said she doubts we’ll ever see mortgage rates that low again, although they’re still fresh in the minds of potential buyers.

The ongoing shortage of affordable housing that has worsened significantly since the start of the pandemic has worsened the mortgage rate situation in the Valley, sending home prices skyrocketing.

According to TRERC, as of June 2020, the median home price in Brownsville-Harlingen was $168,500, with 1,004 total listings. In June 2022, the median home price was $250,000, with 574 total listings. For McAllen-Edinburg-Mission, the median home price in June 2020 was $225,000, with 416 total listings, compared to a median home price of $239,515 and 515 total listings in June 2022.

“In an area like … the Rio Grande Valley, you’ve also seen pretty high house price appreciation, and then rising mortgage interest rates are going to lower affordability even further,” Losey said.

What happens next with the housing market is anyone’s guess, she said.

“It’s mainly precipitated by the level of uncertainty in the overall economy,” Losey said. “Inflation is still pretty high, even though the Federal Reserve is trying to get it under control by raising the fed funds rate. Really, the question in the housing market is how much will the mortgage interest rate rise? Still, how much of that increase are potential homebuyers willing to bear, and then how moderate will home prices be in the wake of a possible recession?”

Nick Mitchell-Bennett, executive director of the Brownsville-based nonprofit Come Dream Come Build, which helps low-to-middle-income families become homeowners, said that before 2020, housing prices in Brownsville were growing at about 3% per year, with about a 35% increase between 2009 and 2020. Then came the pandemic.

“Then when COVID hit and everything around it, it really drove the prices up,” he said. “Depending on the individual RGV market, between 40 and 60% in just 12 months.”

Add to that the presence of SpaceX and the company’s founder and CEO, Elon Musk, attracting hundreds, if not thousands, of new employees from elsewhere in the country to the Lower Valley, which has only served to tighten an already tight housing market, Mitchell-Bennett said.

“I want to call it the heavy investment effect,” he said. “In our case, it would be SpaceX. No one had planned to do this. It’s not their fault. I’ve been accused of being anti-SpaceX. If the richest man in the world moves to the poorest city in the United States, there will be some really, really positive things, and there will be spillovers, and one of them is the price of accommodations.

That fact, combined with rising mortgage rates, has made it harder to buy a home in the Valley, while the rental market is also squeezed due to a shortage of rental housing, Mitchell-Bennett said.

According to the 2022 “Housing Underproduction in the US” report by Up for Growth, an organization that advocates nationally for housing equity and the creation of more homes, the states with the most house shortages are California, Florida and Texas, three of the most populous countries. Latino states and home to 32.7 million Latinos, more than half of the country’s Latino population.

Latinos are disproportionately affected by housing underproduction, according to the report, which shows the MSA of Brownsville-Harlingen, with a 90% Latino population, has the seventh-worst housing underproduction problem in United States. It’s through affordable housing, market rate and rentals, Mitchell-Bennett said. Meanwhile, it has become more expensive for developers to build homes, in part due to ongoing supply chain issues, creating uncertainty about whether enough people will be able to afford them, a- he declared.

“Developers are really nervous because they feel the market is there, they’re just not sure that a low-income market like ours can actually start running (domestic) prices that are more like the prices of San Antonio/Austin,” Mitchell-Bennett said. . “So they get nervous, so they build less, and it’s a vicious cycle.”

Similar problems plague the upper valley, exacerbated by a shortage of land and rising prices for available land, he said.

“Their land prices are rising faster than ours,” Mitchell-Bennett said. “They have more people, so that makes it more difficult.”

The only way to solve the housing shortage is to build more homes, regardless of how the market moves, he said. CDCB, which is working with Esperanza Homes to build 150 affordable, market-priced homes in Brownsville, cannot solve the problem alone, nor can housing authorities or any non-profit or for-profit entity, a- he declared. It requires partnership, and government certainly has a role to play, Mitchell-Bennett said.

He recently traveled to Tacoma, Washington, to find out how Hilltop, a struggling historically black neighborhood, was saved through a combination of building new housing and rehabilitating existing units.

“It was really impressive, because six real estate developers, non-profits and for-profits, got together and said here’s what we need to save this neighborhood, keep it from gentrifying but… create more units,” Mitchell-Bennett said. “The six of them built a plan with the city. It wasn’t about who could maximize profit. It was about we will all succeed if we all succeed. And they worked together to do that. and that’s really cool. They’re working together. I think we could do that in the valley.

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