Jessica Geren and her spouse, Matt, made the decision to switch from their 2.75% fixed mortgage rate to a 5.5% adjustable-rate mortgage in July. This choice came after they sold their previous residence in Ledyard, Connecticut, and decided to purchase a new home in Croton, New York. To finance their new home, the Gerens opted for a 5/1 arm adjustable-rate mortgage loan, which provides a fixed interest rate for the first five years before transitioning to an adjustable rate for the remaining term. It is important to note that the cost of the loan may increase depending on the interest-rate climate at that time.
The couple explained that this was the only viable option for them to make their financial situation work. Despite the challenging combination of rising home prices and increasing interest rates, the Gerens are moving forward with their purchase. This decision stands in contrast to the majority of homebuyers and sellers who are currently inactive in the market. According to the National Association of Realtors, home sales declined by 15% in August compared to the previous year.
Overall, the Gerens’ choice to switch to an adjustable-rate mortgage reflects their willingness to take on potential risks in order to secure their desired home in Croton, New York. While many others are hesitant to engage in the current real estate market, the Gerens are forging ahead with their purchase, confident that they have found a solution that suits their financial needs.
Similar to certain individuals, some are relocating due to the diminishing availability of remote work opportunities in various industries. Alternatively, others are relocating to regions with lower living expenses, leveraging the equity from their previous residence to avoid exorbitant interest rates. However, for prospective homebuyers, it continues to be an exceedingly arduous period to enter the real estate market.
Mortgage rates in 2023
During the month of July, the Green family was in the process of closing on their home. At that time, the 30-year fixed rate mortgage was recorded at 6.8%. This rate was considered relatively high, but the Greens were still able to secure a mortgage for their new home.
However, in the following months, the interest rates on mortgages began to steadily increase. By the week ending on September 28th, the 30-year fixed-rate mortgage had reached a peak of 7.3%. This was the highest rate seen since 2000, according to data reported by Freddie Mac. The increase in interest rates meant that potential homebuyers would have to pay more in monthly mortgage payments, making it more difficult for some families to afford a new home.
In addition to the rising interest rates, the National Association of Realtors (NAR) reported that home prices continued to rise as well. Compared to the previous year, there was a 4% increase in home prices, resulting in a median sales price of $407,100. This marked the third consecutive month that the median sales price had exceeded $400,000.
The combination of increasing interest rates and rising home prices created a challenging environment for homebuyers like the Green family. They had to navigate through a market where mortgage rates were at their highest in years, making it more expensive to borrow money, while also facing higher home prices. This meant that the Greens had to carefully consider their budget and financial situation to ensure they could still afford their dream home.
Overall, the real estate market during this period was characterized by increasing mortgage rates and rising home prices. This made it more difficult for potential homebuyers to enter the market and posed challenges for families like the Greens who were in the process of closing on their home.
The couple also reached an agreement to extend the sellers’ stay for an additional month by offering them the opportunity to rent back the home. This arrangement was intended to distinguish themselves from other potential homebuyers.
Green, an adjunct college professor at several local colleges, reflects, “We experienced a period of three weeks without a permanent residence while taking care of our five children. We spent one week in Mexico, followed by a visit to Washington, D.C. to see my sister. Finally, we traveled to Ohio to visit my parents. It was undeniably one of the most physically and mentally draining experiences of my life.”
Nevertheless, Geren was enthusiastic about making this compromise.
Return to office mandate
She had been observing and analyzing the Westchester County market diligently ever since it became evident that her husband’s remote work arrangement was coming to an end. He had recently secured a new position in the finance sector during the pandemic and had initially been working entirely from home.
However, last year, her husband’s employer implemented a policy requiring employees to return to the New York City office three days a week. Their previous residence in Connecticut, which was in close proximity to the Rhode Island border, was located 3.5 hours away.
Consequently, she explains, “He would remain in the city for two nights. We were compelled to relocate in order to preserve our family unit.”
Housing inventory and home prices
Geren observed that despite the increase in mortgage rates, there was a surge in the demand for homes due to the scarcity of available properties.
According to the realtors’ association, the total inventory of housing units at the end of August was 1.1 million, indicating a decline of 0.9% from July and 14% from the previous year’s figure of 1.28 million.
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In May, the couple made an offer of slightly over $955,000 for a home that was listed on the market. Although their bid was initially accepted, the seller’s agent informed them the following day that there were other potential buyers willing to offer more. Consequently, the couple raised their offer by $15,000, ultimately securing the contract at $965,000, which was almost $10,000 above the listing price.
Stacy Levy, the couple’s realtor, attributes the high home prices to the limited inventory available in the market. She notes that the current market still favors sellers, as there are more buyers than sellers. Levy further explains that pricing a house competitively attracts multiple interested parties, which drives up the price. However, overpricing a property results in it remaining unsold.
One positive aspect for the Geren family was the accumulation of equity in their Connecticut home during the pandemic years. In 2017, they purchased a 7-bedroom property on 13 acres for $500,000. Earlier this year, they were able to sell it for $825,000.
Despite the fact that their new home is approximately 1,300 square feet smaller than their previous one, the Geren family’s commute to the city via express train now only takes 45 minutes.
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For individuals who do not have an urgent need to relocate, relinquishing a low mortgage rate presents a significant concern.
One contributing factor to the limited availability of homes is the fact that 85% of current mortgage holders are locked into mortgage interest rates below 5%. This discourages homeowners from selling their properties and purchasing new ones at the currently elevated interest rates.
According to Levy, unless individuals can sell their current homes at a substantial profit and move to a low-cost area where they can finance most of the mortgage with cash, they are not inclined to relocate.
“That is the reason for our limited inventory,” she states. “Purchasing property has become increasingly challenging, particularly for individuals entering the market for the first time.”
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Jessica Geren expresses her concerns about opting for an adjustable-rate mortgage, acknowledging the associated risks, but deems it the most viable choice considering the prevailing high mortgage rates.
“We anticipate refinancing in the future, but given the circumstances, this was the most favorable alternative available to us,” she explains.
