Rising interest rates are driving up the cost of buying a home, and that could lead to a slowdown in sales and more modest increases in home prices, said Darren King, M&T Bank's chief financial officer.
Freddie Mac reported the average rate on a 30-year fixed mortgage was 5% for the week ending April 14 – the first time in over a decade that mortgage rates have reached that level, and up from 3.1% in December.
"You'll probably see a bit of a slowdown in (homebuying) activity and a slowdown in the rate of appreciation in home prices because of the increase," King said Wednesday, as M&T released its first-quarter results.
Refinancing activity "has largely run its course because rates are now high enough that they're past what people might be paying," he said. But the bank also expects to see some impact on the home purchase side of the business, as well.
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A lack of housing inventory remains an important factor, King said.
"I think the issue is just, there's more people chasing homes than there are homes that are available right now in our community," he said.
The Buffalo Niagara Association of Realtors said as of the end of March, there were only 1,100 homes available for purchase in the eight-county region, down 50% from two years earlier. Listings in March were only slightly above February's record low.
Freddie Mac’s chief economist, Sam Khater, said as Americans cope with high inflation, "the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation."
The rising interest rates may prompt prospective home buyers to rethink their target price, King said.
"What people figure out is what the monthly payment is that they can afford," he said.
Nationally, the Mortgage Bankers Association reported mortgage applications for the week ending April 15 dropped 5% from one week earlier. The organization has forecast that total mortgage origination volumes will drop by one third this year, due to a sharp decline in refinancing activity.
M&T doesn't expect to see that level of dropoff in all of the territories the bank serves, King said. And while prices have risen in the Buffalo market in recent years – including a 12% increase over the past 12 months – it is still among the more stable markets in the nation, he said.
"Some of our geographies are not quite as volatile, so we're not expecting to be down as much as the industry," he said. "But you can't outrun the change in the rate environment."
M&T in the first quarter reported net income of $362 million, down 19% from $447 million a year ago. During the quarter, M&T recorded $17 million in expenses related to its acquisition of People's United Financial. The deal was completed April 1, and M&T plans to convert People's systems and branches in September.