The doubling of interest rates over the past year is affecting construction and the real estate market across Vermont in different ways.
Some observers say the spike is scaring potential buyers away from purchasing homes.
Joe Carelli is among those observers. Carelli, president of Citizens Bank for New Hampshire and Vermont, said applications for mortgages and refinancings have slowed down significantly. But the economy, he added, is still robust.
“We’re continuing to see very strong employment numbers,” Carelli said. “The indicators today don’t point to a recession.”
Demand for housing remains very strong, according to David White, founder of White and Burke, a Burlington real estate management company. White said builders can still build single-family homes and sell them at a profit.
The construction of multifamily housing is harder, White said, because the costs of building have gone up dramatically, with rising interest rates partly to blame. And while rents have gone up, he said, outside of Chittenden County, developers cannot charge rents high enough to recover the cost of construction.
“Elsewhere in the state, it’s darn near impossible right now to make those numbers work,” White said.
He predicts that, with high interest rates, construction will slow down.
“As interest rates go up, it makes it harder to finance a project,” White said.
Average interest rates on a 30-year mortgage have risen from 3.1% a year ago to 6.6% now, according to the Federal Home Loan Mortgage Corp., which calculates the rates based on thousands of applications it receives from lenders across the country when borrowers apply for a mortgage.
Steve Kendall, the senior residential loan officer at Morrisville-based Union Bank, said he cannot remember a time when interest rates rose as quickly in a single year, but he does not see higher interest rates as having much of an impact. He said he has seen a slowdown in residential construction, but he attributes that to the fact that winter is coming, and not to interest rates.
According to Kendall, builders and remodelers are moving forward with residential and commercial projects.
“Since there’s such limited inventory, I don’t think the rates are going to bring developers and projects to a screeching halt, because there’s still the demand,” Kendall said.
In northwestern Vermont, the number of new homes on the market in October dropped from the previous year by 9.2% for single-family homes and 2.1% for townhouses and condos, according to the Northwest Vermont Realtor Association.
Sales of single-family homes fell during that time, too, by 20.7% for single-family homes and 4.5% for condos and townhouses.
Homes are still selling fast. The average single-family home in northwestern Vermont was on the market for 28 days and the average condo or townhouse for 13 days, according to the Northwest Vermont Realtor Association.
Prices also appear to keep rising. The median sales price for a single-family home rose by 9.8% in that year, to $435,000. The median sales price for a condo or townhouse rose by 16.3%, to $330,000.
The doubling of interest rates has had an effect on how much of a home first-time buyers can afford to purchase in central Vermont, according to Tim Heney, a real estate agent in Montpelier. Heney noted a decline in the number of buyers in the last two months, but he is not certain whether to attribute that decline to interest rates or to the annual dropoff in buyers toward the end of the year.
In Rutland, real estate agent Joshua Lemieux said he is no longer seeing offers of 30% to 35% above the asking price, as he did last year. Because of that, he said, even though people have to pay a higher interest rate on their mortgage, they are paying more or less the same as they would have at the lower interest rates that accompanied higher prices last year.
In Bennington, interest rates appear to be having an impact, according to real estate agent Lilli West.
“It definitely has slowed things down, and that is what the feds wanted to do,” West said. She said she sees this especially with regard to investors, who had made Bennington the focus of tremendous real estate activity in 2021.
“It’s really dried up the investors,” West said. Because they are being scared away by rising interest rates, they are no longer competing against first-time home buyers, and those buyers have an easier time now, West said.
“Now they’re finally able to not be in as many multiple-offer situations,” West said, though she stressed that the real estate market is still strong.
“I would say it’s comparable to 2018 and 2019,” periods of strong economic growth nationwide, West said. It’s just not as strong as it was in the first two years of the Covid-19 pandemic.
She is noticing that the rising interest rates are leading sellers to rethink their decisions to sell.
“When you’re at a 30-year mortgage at 3%, you don’t want to lose that and go to a 7% mortgage,” West said. Interest rates hit 7% last month before easing to 6.6%, according to the Federal Home Loan Mortgage Corp.
In the Bennington area, West said, high interest rates have meant fewer cash buyers. She attributes that to the fact that cash buyers often pull money out of the stock market when they want to buy real estate, and with the stock market driven down by high interest rates, people are reluctant to pull their money out of the market at a loss.
But in Montpelier, Rutland and parts of southern Vermont, cash buyers are still showing up, real estate agents told VTDigger. Cash buyers can drive other buyers out because sellers do not have to wait for the buyer to come up with financing, and they can also drive bidding wars that leave first-time local buyers out of the picture.
‘We’re still seeing some cash sales,” said Claudia Harris, a Weston-based real estate agent who also covers Ludlow, Winhall, Londonderry, Jamaica and Peru.