Business & Economy

As interest rates rise, first-time and local home buyers are being 'frozen out'

Construction continues on a housing project in Colchester in May. File photo by Glenn Russell/VTDigger

Higher home prices and mortgage interest rates approaching 6% have made Vermont homes less affordable and cooled down demand, with home sales and applications for mortgages down sharply from a year ago, the Northwest Vermont Realtor Association reported in June.

The decline in demand appears to be from people who need mortgages. But so many buyers have cash that it’s still a tight housing market in Vermont. Sales still garner multiple cash offers, leaving first-time and local home buyers unable to compete because they must finance their purchases with mortgages. Mortgage payments are now 50% higher on average than they were a year ago, leaving many people unable to afford buying a home that might have been in reach before the Federal Reserve jacked up interest rates, the Realtor Association said. 

“The big-picture story is the fundamentals of the market still show lack of supply and high demand,” said David Parsons, a Realtor with RE/MAX North Professionals, which mainly covers Chittenden County. “Those fundamentals really haven’t changed even though interest rates really have ticked up.”

Parsons said first-time home buyers and people who can only afford a small down payment are the ones being most affected by changes in interest rates, he said. “A point change or a half-point change can really be a game changer for them,” he said. 

“No question,” said Peter Tucker,  director of advocacy and public affairs for the Vermont Association of Realtors. “It is the buyers that rely on mortgages” that get hurt by increases in interest rates, he said. “That is very often the first-time homebuyer.”

In northwest Vermont, the housing market was even tighter in June than it was in June 2021, according to the Northwest Vermont Realtor Association, with the average single-family home on the market only 12 days, 47.8% fewer days than the previous June, and the average condo or townhouse 17 days, 41.4% fewer days than a year before. 

Only 258 single-family homes were for sale in Chittenden, Franklin and Grand Isle counties at the end of June, the Realtor Association reported, down from 332 a year before, and just 48 condos and townhouses, down from 78 at the end of June 2021.

Parsons said he’s still seeing bidding wars between buyers. “There’s still relatively unprecedented amounts of cash in the market,” he said. “We were seeing about a third of deals (be cash deals), and that’s dropped down a little bit, but it’s really at high levels, and those really are people who aren’t touched by interest-rate fluctuations.”

Single-family homes in northwest Vermont, according to the Realtor Association, were selling for 5.5% above their list price, even more than the 2.4% over asking registered in June 2021. The same pattern held for condos and townhouses, which were selling for nearly 8% over list price compared to 2.8% last year.

Parsons sees one slight difference since interest rate hikes began: price reductions on some properties.

“Properties that perhaps have some condition issues or were priced on the high side are lingering a bit longer,” he said. 

Southern Vermont home market still hot

In one part of southern Vermont, the market is even tighter, despite the mortgage rate hike. “I have not seen much of a change,” said Claudia Harris, a realtor in Weston. 

Harris said in her region, which includes Ludlow, Winhall, Jamaica, Londonderry and Peru, homes that sell for less than $300,000 have been scarce for the last two years. At the other end of the market, homes that sell for more than $800,000 are still being bought with cash, she said. 

In the middle market of homes selling for between $300,000 and $800,000, she said, “there’s just no inventory. There’s nothing on the market here.” When a house does come up for sale, she said, there are several cash offers on it.  

“Our locals are totally priced out,” Harris said. She said local buyers do not have extra cash to make offers above what a home is appraised at and therefore what a mortgage will cover, and they lose out to second-home buyers who have that cash on hand and can thus outbid the local buyers. 

“Nothing is for rent, and local primary (home) buyers are getting frozen out,” she said.

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Fred Thys

About Fred

Fred Thys covers business and the economy for VTDigger. He is originally from Bethesda, Maryland, and graduated from Williams College with a degree in political science. He is the recipient of the Radio, Television, and Digital News Association's Edward R. Murrow Award for Investigative Reporting and for Enterprise Reporting. Fred has worked at The Journal of Commerce, ABC News, CBS News, CNN, NBC News, and WBUR, and has written for Le Matin, The Dallas Morning News, and The American Homefront Project.

Email: [email protected]

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