Long Islanders navigate the highest mortgage rates since 2000

Michael Wosczyk remembers early in his family's home search last year when a friend bought a house with a 4% fixed-rate mortgage as rates were climbing at their fastest pace in decades.

Surely, he thought, home prices would fall as mortgage rates kept climbing.

“The feeling was interest rates go up, but prices should go down —  but that never happened,” Wosczyk said. 

Long Island homebuyers are facing the highest mortgage rates since 2000, with the average 30-year fixed rate approaching 8%. Just two years ago, homebuyers could access 3% mortgage rates.

A new wave of increases — the average climbed nearly a full point to 7.76% from early August to Nov. 2 — is compounding the region’s housing affordability crisis and pushing some hopeful buyers out of the market altogether. Meanwhile, home prices have actually increased this year to record levels. Many would-be sellers have opted to stay put, keeping homebuyers' options extremely limited. 

The result: Buying a home on Long Island has become significantly less affordable. A homebuyer taking out a $500,000 mortgage today at a fixed rate of 8% would stand to pay $3,668 a month for the principal and interest portion of their loan. That’s a 74% increase compared with two years ago when rates were about 3% and the monthly payment would have been $2,108. The calculation excludes taxes and insurance, which can add more than $1,000 a month.

"I’ve not been through this one before," said Casey Mauldin, chief revenue officer and chief lending officer at Jovia Financial Credit Union. "It’s the spike of how quickly it went, but it’s also how long we anticipate it staying there. If the economy keeps doing what it’s doing, [the Fed is] going to keep rates higher for longer."

On Wednesday, the Fed opted to keep its benchmark interest rate the same, maintaining it at a 22-year high. "The process of getting inflation sustainably down to 2% has a long way to go," said Fed chair Jerome Powell.

Newsday spoke to recent homebuyers, lenders and real estate agents about the challenges of buying with mortgage rates at their highest in decades. They described an environment in which buyers have considerably less purchasing power than they did just months ago.

“The getting has been good for a long time,” said Christopher Roberti, director of strategic growth at mortgage lender Hartford Funding in Woodbury, of the recent stretch of historically low interest rates. “This is the complete opposite side of the coin.”

'You kind of get hopeless' 

Wosczyk, 38, said he and his wife, Erica, who have been renting a house in Queens with their two sons, weren’t sure where they wanted to live when they began looking last year. They considered Rockland County but decided their respective commutes — to Manhattan, where Michael works as a building engineer in a luxury high-rise building, and Queens, where Erica is a registered nurse — would be too long.

When they began to look more seriously at Long Island this summer, they were disappointed with what was for sale. 

"The more you looked, you just saw there was nothing," he said. "When you look at a home and you don’t really feel a connection to it and see so many people just going after it, it sets in a little panic.”

In mid-August, the couple started working with Douglas Elliman associate broker Donna Reardon, who told them about a house in Wantagh. They made a full-price offer at $818,000 and were in contract two days later on the home, which has a stone exterior, four bedrooms and a fireplace. 

“When I heard it got accepted, I was in tears,” Wosczyk said, “because it was so challenging and what we were seeing just wasn’t matching up to what we needed. You just kind of get hopeless.”

After finding a house, the Wosczyks still needed to finalize a mortgage. They closed with a 6.78% fixed-rate mortgage, paying around $6,000 in discount points to lower their monthly payment, which at around $4,900 is roughly double what they were paying to rent their house in Queens. 

They also accepted a slightly higher rate in exchange for a 45-day rate lock, during which they were guaranteed that rate regardless of market fluctuations. 

While the home was near the upper limit of the family’s budget, and required them to dip into their retirement savings, Wosczyk said he sees it as a worthwhile investment in the family’s future.

“Once you see what you’re getting, you’re like, ‘This is home for us for the next 30 years. Let’s make it happen,' ” he said.  

Options for borrowers

Paying points can help lower a buyer's monthly payment, but it has become less popular as rates have climbed. A discount point is an upfront fee charged by lenders, which lowers a borrower’s interest rate.

Points can be a useful tool for borrowers who have available cash or need to lower their monthly payment to qualify for a loan. Others could lose out on that money if they refinance or move to a new home before they break even on the amount they paid upfront. For example, it would take a buyer who pays $3,000 in discount points and saves $50 a month, 60 months to break even on their upfront payment.

Adjustable-rate mortgages are another option borrowers turn to when rates jump. But with rates for ARMs nearly as high as long-term fixed home loans, lenders told Newsday they haven't seen those loans rise much in popularity. ARMs have a fixed rate for a certain period of time, such as seven years, before typically adjusting at least annually. Many borrowers opt for ARMs if they plan to move or refinance before the fixed period of the loan ends. 

"I encourage them to stay with the fixed rate product because it’s more secure," said Zahra Jafri, founder and president at Lynx Mortgage Bank in Westbury. "Regardless of your end plan, you don’t have to be forced into a position to refinance."

Somehow, the sustained climb in mortgage rates has yet to extinguish Long Island’s hot housing market, which began as the pandemic started when people sought more space and had greater flexibility to move to the suburbs because of remote work.  

While the number of home sales on Long Island has turned sharply downward, prices have kept moving higher even as buyers stand to pay more in mortgage interest. The number of home sales on Long Island fell 17% in September compared with the same month a year ago.

Meanwhile, median home prices reached record highs in both LI counties in September, the latest month in which data is available from OneKey MLS. The median home price in Nassau climbed 5.2% year over year to $735,000 in Nassau and 8.2% to $595,000 in Suffolk.

Experts say the number of homes on the market, at about 5,000, is to blame. That number is less than half what it was before the pandemic. It has kept sales competitive even as some buyers have exited the market because they can no longer afford to purchase. 

Sellers have little financial motivation to list because so many bought or refinanced when rates were very low. About eight in 10 U.S. mortgage holders had a rate below 5% in the fourth quarter of 2022, according to a Redfin analysis of federal data published in June. 

"Where are people going to go? [They're saying] I'm not going to sell my house because it doesn't make common sense," said Richard Steinberg, founder and chairman of Nationwide Mortgage Bankers in Melville. " … People are doing additions or renovations to their homes to make them their forever homes — or forever-for-now homes."

Francheska Gomez, vice president at Fave Realty, leading its Freeport office, said she worries the current dynamic of low inventory and above-asking price offers is unlikely to change until at least the spring, when more houses typically hit the market. A drop in mortgage rates might not necessarily help buyers either.

“If the rates are better, I don’t think the bidding wars will die down," she said. 

'How does anyone buy a house?'

Kyra and Christopher Krug started looking for houses in Suffolk County in August after getting married in June, and found plenty of competition. They were nearly ready to give up after losing out on four houses that had as many as 10 other bids.

Kyra Krug, 30, a pre-K teacher in Hempstead, said she recalled asking her agent, “How does anybody get a house?”

She had seen friends move out of state and thought, “If this doesn’t work out, I don’t know if we’re meant to stay here.”

But Christopher Krug, 29, who works as a kitchen aide at a hospital, said he kept pushing to look at more houses. The couple found a three-bedroom ranch in Holbrook, where they found they could get more property than in western Suffolk. They landed the deal by offering $510,000, or about $40,000 above its list price.

“Counseling buyers is extremely stressful at this point,” said Kevin Dayton, vice president of mortgage lending at CrossCountry Mortgage in Melville, who worked with the Krugs.  “Somebody makes an offer on a Saturday, they start writing up the contract the following week. Interest rates may be up a half-point or quarter-point by the time they’re ready to move forward."

Even a quarter-point may push the monthly payment up hundreds of dollars, Dayton said. "It makes all the difference, especially in this market where affordability is so difficult.”

The Krugs took out a 7% fixed mortgage through a program offered by the State of New York Mortgage Agency, which offers below-market rates to first-time homebuyers. Buyers can also opt for a mortgage closer to market-rate and receive down payment assistance from SONYMA.

The ability to stay near their families and jobs will come at a cost. The Krugs' mortgage payment will be more than double the $1,650 the couple paid to rent a one-bedroom apartment in a converted garage in West Babylon.

“I’m excited, obviously, because we both have never owned a home, but it’s a nervous feeling too … because of the financial aspect of it,” Kyra Krug said.

What will the future hold?

The Federal Reserve has signaled that it may need to keep its benchmark interest rate higher for a longer period to control inflation and move it closer to its 2% target.

If it does so, mortgage rates are not likely to come down substantially. Economic forecasters expect mortgage rates to fall gradually over the next year. Fannie Mae projects an average 30-year fixed rate of 6.7% by the fourth quarter of 2024, while Goldman Sachs predicts 6.8% and the Mortgage Bankers Association forecasts 6.1%. 

Long Islanders considering a purchase should watch how the pace of inflation changes in the coming months for hints about where mortgage rates are headed, said Molly Boesel, principal economist at CoreLogic. Mortgage rates tend to move in the same direction as the yield on 10-year U.S. Treasurys, which fell to its lowest point since late September on Friday following this week's Fed meeting and a jobs report that showed a slowdown in hiring. The yield usually rises during inflationary periods and falls when there is greater fear of recession.

“If inflation is staying high, the Federal Reserve is going to keep the pressure on interest rates, and that pressure will raise mortgage rates,” Boesel said. “Until you see inflation coming down, we’re not going to expect rates to fall.”

Dayton, of CrossCountry Mortgage, said borrowers have to be comfortable with their monthly payment because they won’t know for sure when they will be able to refinance.

“You have to be prepared to own this for a period of time in the event that opportunity doesn’t present itself for several years,” he said.

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.