Higher interest rates free up housing, make financing difficult

MOSES LAKE  — The good news is, the housing shortage that made finding a home so difficult a couple of years ago appears to have passed. The bad news is, it’s getting harder to buy the homes that are on the market.

“We're kind of back to where we were prior to what I call the surge when you were competing with six different people for a house,” said Ritzville-based real estate agent Troy Ryan, with eXp Realty. 

Interest rates have been a major factor, causing costs to rise for ordinary buyers, which in turn leaves more homes on the market. 2021 saw the average interest rate on a 30-year mortgage drop to 2.65%, the lowest on record, according to the Federal Home Loan Mortgage Corporation, or Freddie Mac. That was reversed by a spike in 2022 when rates leaped from 3.22% in January to 7.08% in October. In October 2023, the average rate rose to 7.79% before beginning to settle back down. As of Dec. 7 the average 30-year rate was 7.03%. 

“The rates are dictating the market right now,” said Jessie Dominguez, with Imagine Realty in Othello. “We're seeing that nationwide, really, not just here in Adams and Grant counties.”

Dominguez explained that higher interest rates mean more people are priced out of the market for homes they could have purchased two years ago had they been available, because their debt-to-income ratio is now too high.

“The demand was there,” Dominguez said. “We had people really wanting a home, but they just could not qualify, or they just could not afford it … It put people in a position they've never been in before, with the current prices we have, plus where the interest rates were. It just wasn't doable for anybody.”

Othello is by far the largest city in Adams County, with a population nearly half the county’s total. It’s also where the greatest population growth is happening.

“(First-time home buyers) will get a preapproval from somebody and they're looking at their credit, look into their employment, their income, and they're getting a preapproval, but they when they go to actually get prequalified, there's some things that pop up,” Ryan said. “I had one (where) we were three days prior to closing, then all of a sudden (something was flagged) for some reason. It hadn't shown up on anything else and it was five years ago, but all of a sudden, it showed up on his credit three days before closing and it killed the deal.”

It’s not all doom and gloom, however. Dominguez explained that some sellers are offering incentives to help get first-time homebuyers into their homes. One option they may offer is called a 2-1 buydown, in which the buyer pays the loan at a lower interest rate for the first two years, and then increases the payments to the current rate. Either the buyer makes an up-front payment or the seller may offer it as an incentive. The money is kept in escrow and drawn on to fill in the gap.

“Let's say the builder gives them $14,000. Every month, they take out a couple hundred bucks, so your payment’s only $1,500. Then the other money that’s in escrow will compensate (the rest) … which gives you room to refinance down the road. People are already saying we're looking at some rate cuts next year. So when the rates go down more, then you can refinance. In the meantime, those subsidized payments are helping.”

Joel Martin may be reached via email at jmartin@columbiabasinherald.com.