Published September 2003

Fear of rising rates
spurs home buyers

By Mike Benbow
Herald Business Editor

Home sales soared throughout the Puget Sound area in July as buyers apparently raced against rising interest rates.

“I think it makes a lot of people nervous, but it also knocks a lot of people off the fence,” Windermere Mill Creek broker Vern Holden said of recent mortgage rate increases. “They figure, ‘We’d better dive in now if we’re gonna do it.’ ”

In Snohomish County, home sales increased 18 percent in comparison with July 2002. Pending sales — sales begun in July that didn’t make it through closing — rose nearly 45 percent in the county, indicating the big buying spree continued into August.

“It’s phenomenal,” Holden said. “It’s incredible.”

Sales were even more dramatic in King County, where the numbers were nearly 36 percent higher than for the same time last year. Pending sales were up more than 45 percent. In Island County, sales were up 14 percent.

J. Lennox Scott, chief executive of John L. Scott Real Estate, also credited rising rates for the sales boom.

“The spike in sales across all markets in July was a direct result of the one-point increase in interest rates over the last 45 days,” he said. “Not since the dot-com boom have we seen sales like this.”

Interest rates in August were hovering around 6.08 percent for a 30-year mortgage, according to Bankrate.com surveys. That’s up from 5.83 percent a week earlier and 5.24 percent a year ago.

Earlier this year, rates hit historic lows before starting to climb back up.

“I think to some degree there are people coming to the realization that it is as low as it will ever go,” Holden said.

Rates aren’t the only thing rising. Prices, too, are at record highs in Snohomish County.

The combined median price for single-family homes and condominiums in July was $228,950, up 5.26 percent from a year ago. That means half the homes sold for more and half sold for less. By comparison, the combined median price in King County was $272,000, and for Island County it was $192,250.

Holden said the rising median prices may reflect the large number of new homes on the market, especially in south Snohomish County.

“When you look at Edmonds, Mill Creek, Bothell during the last six years, you see more new homes in subdivisions,” Holden said. “I think that the new construction is driving the resale market up.”

Strong increases in land prices mean builders have to raise prices for new homes, Holden added.

He said continued rising rates will likely slow down the market for a while, but he doesn’t think it will collapse unless rates rise dramatically.

“If there’s anybody out there who thinks 6 percent is too high, they haven’t lived,” he said. “I think we’ll see a slight hiccup in sales until people realize that 6, 7, 8 percent isn’t that bad.”

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