RALEIGH – Mortgage interest rates have increased, again, and lending activity has slowed.  And the region’s real estate market is among the metropolitan statistical areas where competition for purchase contracts has decreased year-over-year.  Still, the median price of real estate in Wake County sold in May 2022 increased to a new record high, according to the Wake County Register of Deeds.

The report shows that the median sales price of a parcel of Wake County real estate was $462,000 in May 2022.

That’s up $8,000 from April 2022, when the median sale price was measured to be $454,000.

Wake County real estate prices up in May even as lending activity, competition decrease

Wake County median real estate prices, monthly, 2022. Wake County Register of Deeds image.

The Wake County Register of Deeds uses statistics that are derived from legal instruments recorded in the office of the Wake County
Register of Deeds, and the value and sale prices of real estate are measured by the excise tax assessed on the sale and transference of real property in accordance with North Carolina statutes.

The methodology is different that that used by the Triangle Multiple Listing Service, which released data for Wake County and other areas of the Triangle earlier this week.  TMLS data found that, in Wake County, the median home sale price remained at $485,000 in May 2022, the same measured median sale price from April 2022.

And while the median price of real estate in Durham County in May 2022 was $424,250, down from the median sale price of $426,000 in April 2022, local real estate agents are still anticipating that home prices in the Triangle will rise, over time.

Wake County real estate market sees a price pause – agents still predict prices will rise

A primer on the 30-year fixed mortgage

When mortgage rates rise, the cost of borrowing money to finance a home purchase rises, as well.  Where homebuyers feel this is in their monthly payments.  Some may even choose not to pursue buying a home any longer, as the cost and monthly payment becomes too high.

A 30-year mortgage loan is amortized, meaning that the debt is paid off over time, and a monthly mortgage payment consists primarily of payments of interest—the cost of borrowing the funds—and principal, the total loan amount borrowed.  For many lenders, taxes and insurance are also paid into an escrow account on a monthly basis, but the majority of monthly payments are made up of principal and interest payments.

So as the Federal Reserve moved to raise interest rates by three-quarters of a percentage point yesterday—a move than many analysts, investors, and lenders expected in order to tamp down soaring inflation and cool off price appreciation for many consumer goods—typical mortgage interest rates had already moved higher in expectation.  Mortgage News Daily measured average rates on a 30-year fixed loan at above 6% on Tuesday and Wednesday.

And yesterday’s weekly report from Freddie Mac shows that in the prior week, the average mortgage rate for a 30-year fixed loan has risen by 0.55% and was 5.75%.

A year ago, the average mortgage rate was 2.93% on a 30-year fixed loan for the week ending June 17, 2021, and in 2020, the average rate for the loan product was 3.13% for the week ending June 18, 2020, according to Freddie Mac’s data.

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Impact on Triangle’s housing market

“Moving a mortgage rate of up to 6% will have a significant affect on who can afford housing,” said Greg Brown, the executive director of the Kenan Institute of Private Enterprise and a Sarah Graham Kenan Distinguished Professor of Finance, at the UNC Kenan-Flagler Business School in a virtual briefing earlier this month.  “I would imagine it would move toward a cooling of price pressures.”

So when the cost of borrowing money increases, the expectation is that fewer people will seek to borrow money.  In the housing market, it is possible that competition for homes for sale slows as interest rates rise.  But the Triangle is still rife with bidding wars as homebuyers seek to place homes under contract.

Still, said Brown, there are other factors that are impacting the Triangle’s housing market and affordability is still a concern.

“But overall, there’s a huge housing shortage,” said Brown.  “The cost of housing has gone up, it may continue to go up.”

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And a new report from Redfin shows that the metropolitan area is seeing far less competition for homes than a year ago, according to data from the national brokerage firm.  While last year, 82.9% of all homes had multiple offers in the month of May, during May 2022, 52.2% of homes did.  That’s a drop of 30.7%.

In Wake County, there’s a growing gap in the real estate market

Lending activity down in Wake County – but that doesn’t mean fewer homes sold

The data from the Wake County Register of Deeds shows a slowing of mortgage activity, measured by the recorded deeds of trust in May 2022.

“Real estate lending activity in May 2022 decreased by 3.1% from April 2022’s level and compared to May 2021, it was down 31%,” the report reads.  “There were 4,507 deed of trust transactions in May 2022, where April 2022’s deed of trust transactions showed 4,680.”

Deeds and Deeds of Trust. Data and image: Wake County Register of Deeds.

Still, though, the data shows that more deeds were filed in May than in April, meaning there were more closed real estate transactions in May.  Thus, the conclusion of the report notes that mortgage lending activity has not slowed in the new purchase market, it has rather dropped in the refinance market.

“[R]efinancing activity continued to cool in May 2022,” the report notes.  The ratio of deeds of trust to deeds, a measure used by the Wake County Register of Deeds to track new purchase mortgages compared to refinance or second mortgage activity, is now 1.29, down 3.7% from the month prior, and down from its widest measured ratio gap of 2.5 in February 2021.

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Buyer, beware?

Real estate economist Ken H. Johnson, a co-developer of an index that measures real estate markets considered overvalued compared to historical pricing data, ranked Raleigh among the nation’s 15 most overvalued markets in a recent analysis conducted at the end of May 2022.

“Right now, my worry, if I were looking in Raleigh and looking to buy, is that I would be buying at the peak of the housing cycle,” Johnson told WRAL TechWire earlier this month.  Others disagree, including the UNC Charlotte economist John Connaughton, who suggested that if one was seeking to buy a house, the time would be before interest rates rise.  Connaughton’s advice came before the recent increase in average mortgage interest rates, however.

But what’s more likely to happen, said Johnson, is a softening of the market, as mortgage interest rates rise.  A collapse and crash akin to 2007-2010 is unlikely—at least in Raleigh and other similar metropolitan areas where net migration remains high and jobs are being added to the local economy.

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“If you look at the last peak, which was in 2007, it would take until about early 2016 that you could sell at the same value,” cautioned Johnson.  “The holding period, or the period you would own the property, would have been nine years.”

But the Triangle may be insulated from a downturn in the real estate market, even if one should occur in other markets across the country, he said.

That’s due to the ongoing population growth in the region.  Plus, said Johnson, housing inventory remains low.

“Those two things are radically different now than they were in 2007,” Johnson concluded.  “Could be a softening of prices, and a long term trend of a lack of affordable housing,”

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