After 20 years of renting in Boston and later Spokane, Florence Mwangi decided it was time to try to purchase her first home.
The 56-year-old caretaker, who came to the United States from Kenya, chose what many believe is a perfect time: interest rates have been so low that it makes more expensive homes affordable. However, those same forces have led partly to an extremely low number of homes on the market, which is driving the median price of Spokane homes to historic levels.
“I’ve been renting,” Mwangi said. “I’ve been looking to buy a home.”
Her real estate agent found a home for Mwangi in northwest Spokane. However, the first two banks she tried either wanted too much money as a down payment or turned her down.
Then Mwangi called STCU. A loan officer called her back in four hours. She was approved for a loan that would allow her to purchase the home.
“The sale is still in the process. We haven’t closed yet,” Mwangi said. “I can’t wait to get into the new house. I’m very excited.”
That same excitement has prompted thousands of homeowners to flood area banks, taking advantage of low interest rates.
Some homeowners are refinancing to lower their monthly mortgage bill, others are taking out home-equity lines of credit to upgrade their existing homes, and a few are converting standard 30-year mortgages to 15-year or even 10-year mortgages, paying off their debt sooner, several bankers said.
“It’s absolutely going crazy,” said Jack Heath, president and chief operating officer of Washington Trust Bank in Spokane. “We are having record months every month both for new home purchases and refinances of existing purchases.”
Even as the pandemic has ravaged the hotel, restaurant and travel industries, the low interest rates for lending have prompted many home owners to pounce on the relatively cheap money. Banks like Numerica Credit Union are processing a record number of loans.
Troy Clute, a senior vice president at Spokane Valley-based Numerica, said his organization processed about 62% home purchases in 2019, compared to 38% in refinanced loans. But in 2020, Numerica has processed 36% for purchases of new homes and 64% for refinancing existing mortgages.
“That doesn’t mean the purchases have dropped off,” Clute said. “They are at the same level. But, as a percentage of business, they have dropped. Last year through July, we did about $40 million in (refinanced loans). This year through July, we are at $119 million.”
Ezra Eckhardt, CEO of STCU, said his institution has been experiencing the same rush of people taking advantage of the low interest rates.
“Last year we had a record production year for us,” Eckhardt said. “We will exceed that this year by the end of August.”
The demand has outstripped the number of homes coming onto the market. Eckhardt also believes that the number of people moving to Spokane and North Idaho from elsewhere has had a dramatic impact on home prices.
“Part of the reason the housing market is so aggressive is there hasn’t been the same number of home starts and not as much inventory,” he said. “The second thing is that after five months in a pandemic, we have had an in-flow from other places.
“I’ve heard anecdotally that people want to sell in Seattle and move to Spokane,” he continued. “They don’t want to mess with the protests and downtown. It’s easier to get around here.”
However, the forces that have driven the home market can quickly change if the job losses from the pandemic produce a corresponding number of home foreclosures, he said.
“There is a lot of uncertainty on what’s going to happen with the long-term mortgage forbearance and rent abatements,” he said. “I’m hopeful that state and federal governments find a way to extend the current programs. If we start moving those people around, it will be disruptive to the housing market.”
While the supply side may change, the low interest rates should remain for quite some time, he said. The loan rates are based on the lending rate to banks that is set by the Federal Reserve.
“They are projecting record-low interest rates for at least two years into the future,” Eckhardt said. “I can’t imagine them increasing significantly in the next 24 months.”
Heath, of Washington Trust, said in the current situation, the lack of available homes has caused prices to jump and prompted other homeowners to make alternative plans.
“There is such a lack of inventory that I may list a home for $300,000 and end up selling it for $315,000 or $320,000 because of bidding wars,” Heath said. “But you are selling at a high point in the market. Then you have to turn around and buy. That kind of creates the problem.”
As a result, homeowners are looking inward, he said.
“People are saying, ‘Shoot, let’s stay where we are at,’ ” he said. “Let’s pull some cash out. We’ll remodel this place and we’ll just stay put.”
Borrowers typically can lower their monthly payments if they can drop their interest rates by refinancing their existing mortgage. However, if they intend to draw out money based on the increased value of their home, or equity, banks typically will only allow homeowners to refinance 80% of the value of their home and will charge a higher interest rate.
Heath said the economic disruptions from the pandemic could eventually bleed their way into the local housing market.
“The stock market continues to perform really really well. It’s a strange time,” he said. “We are trying to figure it out – what is the impact that will bring a recession into play?’”
Heath said he’s closely watching the hospitality sector, as well as higher education and private schools.
“Typically, we are behind the curve of feeling the pain and recovering from the pain,” Heath said of recessions and Spokane. “If the economy continues to suffer long-term and employment really starts to continue to decrease … then we’ll see the housing market suffer. But, we don’t see anything in the near term that will adversely affect this.”
The only way to inject certainty into the equation is to get a handle on the pandemic, he said.
“It’s all about COVID-19 and how fast we are able to fight” the virus off,
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