Lower mortgage rates will help — but won’t solve — housing crisis in NH

New U.S. Bank report details the impact of higher interest rates on today’s housing market in New Hampshire

A recent analysis by U.S. Bank says higher mortgage interest rates have been a significant contributor to the diminished supply of residential housing across the country.

“Mortgage rates more than doubled because of the Fed’s change in interest rate policy,” says a Feb. 29 U.S. Bank report entitled “The impact of today’s higher interest rates on the housing market.”

“It not only made monthly mortgage payments less affordable for potential buyers; higher rates also served to discourage many existing homeowners from putting their current homes on the market only to assume a new, potentially more costly mortgage with a new home purchase. This has led to a reduction in the supply of existing homes, requiring homebuyers to increasingly rely on new home construction inventory,” it added.

Would lower rates help move the needle on the housing supply, particularly here in New Hampshire?

“A rate cut may encourage some potential sellers to list their properties which could increase inventory,” said Joanie McIntire, president of the New Hampshire Association of Realtors (NHAR).

The real solution to the supply problem, according to McIntire, is new housing stock.

“The path to increased sales and improved affordability is most definitely increased inventory by way of new development,” said McIntire, an associate broker at Coldwell Banker J Hampe Associates in Concord. “Cities and towns throughout the state hopefully are seeing that  restrictive zoning is hindering new development making it nearly impossible for workers to find housing.”

Here are the key takeaways from the U.S. Bank housing report:

• Persistently higher interest rates continue to create headwinds for the U.S. housing market
• 2023 was the slowest year for existing home sales since 1995
• New home sales rose, however, reflecting the fact that housing demand remains strong

Home prices soared and supply thinned during the COVID-19 pandemic, particularly in the more rural markets, such as New Hampshire, as people sought to get out of crowded urban areas. The trend of high prices and limited supply has continued in the Granite State in the years since.

As a hedge against inflation, the Fed (the Federal Reserve) began raising interest rates (from near 0% to 5.50%) in 2022 and 2023 to offset the impact of inflation.

Generally right now in New Hampshire, the rate for a 30-year fixed is 7.3%, while the rate for a 15-year fixed is 6.69%.

That’s a far cry from the COVID year of 2020 when the average rate on a 30-year fixed rate dropped to the historically lowest level of 2.67%.

“The problem that I see is sellers are usually buyers who want to know they will be able to secure a property once they sell,” said McIntire. “Inventory continues to be at an all-time low, just 945 single-family homes for sale in the whole state this morning (on Feb. 29). We continue to see multiple offers on new listings with days on market at 14. I believe this uncertainty is a big contributor to sellers’ reluctance to list.”

In its continuing effort to stave off inflation, the Fed has indicated that consumers shouldn’t expect any rate cuts until at least May or June.

The effect of higher interest rates can also be seen in the number of new mortgages that banks have written over the last several quarters.

ATTOM, a curator of real estate data nationwide, said in its fourth-quarter 2023 U.S. Residential Property Mortgage Origination Report that mortgages secured for residential property (1 to 4 units) declined 13.8% from the prior quarter, the tenth drop off in the last 11 quarters.

As an example locally, ATTOM provided data for the Manchester-Nashua Metropolitan Statistical Area, which encompasses all of Hillsborough County.

In Q4 2023, the data shows 884 new mortgages were written, a quarter-over-quarter decline of 17.1% and a year-over-year decline of 18%.

Rob Barber, CEO at ATTOM, said the Q4 2023 data “revealed continued gloomy times for lenders, no matter how you sliced the pie.”

The statewide association hopes the local market will adhere to the National Association of Realtors prediction that nationally there will be a 13 percent increase in home sales in 2024. Home sales drooped 18.7% in 2023 versus 2022.

The NHAR’s optimism comes from its pending sales data point.

It said in January that for the first time since April 2021, the state saw a second consecutive month of increased pending sales. Pending sales indicate the number of single-family residential properties on which an offer has been accepted. It said January also marked the first time since April 2021 that New Hampshire showed an increase in both closed sales (5.6% over January 2023) and pending sales (up 4.2%) in the same month.

“Obviously, it’s far too early to determine whether this marks the beginning of a trend, but it’s certainly unique to the market we’ve been experiencing for the past few years,” said McIntire. “The real question to be answered is whether the state can dig out of the inventory and affordability hole that we’re in.”

To McIntire’s point about optimistic pending sales numbers, NHAR’s latest look at the local market, its January trends report, shows pending sales for single-family homes are up 28.8% over January 2023, up 20.5% for residential condominiums.

The number of closed house sales for January also ticked up a bit in the Granite State — a 3% increase over the previous year. Closed sales for condos went up 9.4%.

But median prices also went up to $475,000, an 11.6% increase for a single-family home, and to $377,500, a 10.4% increase for a condo.

By county, Rockingham continues to be the priciest market for a house, registering a median price of  $610,000 in January, up 14% over the previous year. The most expensive county for a condo was Coos, which had a median price of $900,000, a 38.1%  jump over January 2023.

In Rockingham County, the Seacoast Board of Realtors said sales of single-family homes in its sample communities reached an all-time volume low for any month while the median sale price continued to tick upward.

There were a scant 28 single-family sales, but the median price bumped up to $769,900, 17.9% higher than last year’s $652,400.

The number of condo sales in the Seacoast market outnumbered houses by three. The median of $559,900 is 23.1% more than last year.

The Seacoast board’s sample communities include Exeter, Greenland, Hampton, Hampton Falls, New Castle, Newfields, Newington, North Hampton, Newmarket, Portsmouth, Rye, Seabrook and Stratham.

“We’ve reached a point in our market where the volume action seems to be on the condominium side,” said Lynn Lagasse, president of the Seacoast Board of Realtors and a broker at Keller Williams Coastal Realty in Portsmouth. “It’s unchartered waters, but it’s the new reality.”

The New Hampshire Housing and Finance Administration on March 26 will hold a 2024 Homeownership Conference to, as it says, “learn about the current housing landscape, solutions for increasing inventory, as well as ideas on affordability, availability and access.”