Higher mortgage rates haven't cooled LI housing market

The Long Island housing market showed little sign of a retreat in March even as mortgage rates posted their fastest three-month climb since 1987.

The average rate for a 30-year fixed mortgage hit 5% this week for the first time since February 2011, according to mortgage giant Freddie Mac, adding higher borrowing costs to the list of challenges for Long Island buyers, who are already facing home prices near record highs and a shortage of houses for sale.

The median price for a home sold in Nassau County last month was $650,000, or 8.3% higher than the median in March 2021. In Suffolk, the median sale price was $530,000, which was 12.8% higher than a year earlier, according to data released Thursday by OneKey MLS, the multiple listing service that covers Long Island. Home prices have remained relatively static since the fall.

The number of homes sold on Long Island fell 18% in March compared with the previous year, reflecting the shortage of listings. 

Pending sales numbers from March, which are a more current indicator than closings, show the local housing market has not yet been slowed by rising interest rates, said Jim Speer, CEO of OneKey MLS. During the month, the average rate for a 30-year fixed mortgage rose by nearly a full percentage point from 3.76% to 4.67%, according to Freddie Mac.  

There were 1,694 pending sales in Suffolk County last month, in which a contract had been signed but the deal had not yet closed. That was 0.6% higher than in the same month in 2021, even with fewer houses on the market. It was the first year-over-year increase in pending sales in Suffolk in almost a year. In Nassau, there were 1,345 pending sales, which was down 8% from March 2021 but higher than in recent months.

"At this point with inventory so low and demand so high, it's really difficult to tell at what point it could put a drag on the market," Speer said of higher rates. "We're at the point that some people thought it would start slowing the market down and it hasn't. It's hard to really tell when it will happen or if it will happen."

Unusually low inventory has ratcheted up competition among buyers.  There were 4,932 houses on the market in March, which was an 8.6% improvement from February but still nearly 20% less than the selection available to buyers in March 2021.There were 1,106 closed sales in Nassau and 1,251 in Suffolk last month, a decline of about 18% in both counties.

Cory Knopf, an associate broker with the Hal Knopf Team at Compass in Oceanside, said the number of new listings in Oceanside in the past four weeks has been the highest of any four-week period in the past year. “But the number of contracts signed was still within one or two of the number of listings that came up, so it doesn’t even matter,” she said. “We’re still not increasing inventory. We’re just selling more.”

Knopf said she doesn’t think higher interest rates will drive down prices, but she has seen it affect behavior. A buyer that was looking at houses around $800,000 last year, when interest rates were about 2 points lower, is  eyeing homes in the $700,000 range today, she said.

“Because there are so many buyers available that want houses, I just think it’s a shift of which buyers are going to be bidding on which houses,” Knopf said.

 Others say higher rates could precede an end to the era of rampant bidding wars. Zahra Jafri, president of Lynx Mortgage Bank in Westbury, said a two-point increase in mortgage rates over a short period affects how much buyers can afford to spend.

 "We’re still not seeing house prices go down yet, but ultimately that will be the result,"she said.

  Nationally, real estate brokerage Redfin is seeing signs of softer demand, with a 3% drop in online searches for “homes for sale” and a 6% decline in mortgage purchase applications from a year earlier.

 “There really is a limit to homebuyer demand, even though the market over the past few years has made it seem endless,” Daryl Fairweather, chief economist at Seattle-based Redfin, said in a statement. “The sharp increase in mortgage rates is pushing more homebuyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market anytime soon.”

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.