What affect will rising interest rates have on the Charleston, SC regional housing market?

What affect will rising interest rates have on the Charleston, SC regional housing market?
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According to Freddie Mac’s Office of the Chief Economist  in its latest U.S. Economic and Housing Market Outlook, the interest rate for a 30-year, fixed-rate mortgage is expected to hover around 4% during the second half of 2013 after rising 0.5 percentage points in the past several weeks.

Also in the report, which can be accessed at the end of this post, most housing markets  remain affordable and it would take a much steeper interest rate hike for potential homeowners to feel the economic pinch of rising rates.  Note the use of “most housing markets” in the report.   Even at a 4% interest rate level, high-cost cities such as San Francisco, San Diego, Washington D.C. and Boston have already regained their historical “unaffordable” label.

Exempting the traditionally unaffordable housing markets, Freddie Mac researchers says at today’s home price and income levels, mortgage rates would have to rise closer to 7% before families with median incomes would find themselves unable to afford a median-priced home.  Of course the assumption that home prices will not rise is negated given the incredible and lightening fast increase in home prices through much of Charleston County.  Some neighborhoods’ average selling price for homes YTD 2013, like Byrnes Down in West Ashley, have actually eclipsed the peak experienced in 2007 (but the Byrnes Down average selling price per square foot YTD 2013 is still 10% below that of 2007).

Byrnes Down Avg Sell Price 2007 - YTD 2013

Byrnes Down Avg Sell Price 2007 – YTD 2013

And to make matters more worrisome for the Charleston, SC housing market, Freddie Mac economists predict that we will have the dubious honor of joining the “unaffordable housing market club” when interest rates hit 5%, not the national 7% doomsday figure.

Still, Frank Nothaft, vice president and chief economist with Freddie Mac, calls today’s fears about rising rates unwarranted in many respects.  “The recent upturn in interest rates is sparking fears among some that the nascent economic and housing recoveries will be choked off before they produce sustained growth,” said Nothaft.  “Nothing in the recent trends suggests that we need to fear a major slowdown. A gradual rise in interest rates will not derail the recovery, and are an indication that the overall economic situation is improving.”

Freddie Mac’s What Happens When Interest Rates Rise

Jim Bobo, Jr., Realtor, BIC, ABR, RSPS, MBA

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