How Concerned Are You About Potentially Higher Mortgage Rates?

Mortgage rates are expected to rise later this year. Builders catering to first-time buyers are expected to be the most affected. We asked three who build starter homes about the likely impact.

Zudi Karagjozi
President, Kara Homes
East Brunswick, N.J.
If rates accelerate above 8%, we’ll start to see a significant slowdown industrywide. In New Jersey, we are a little bit more insulated from a sharper downturn than some other areas of the country because there’s a dramatic reduction of inventory in our state and throughout the Northeast. We have a little bit of a buffer from a softening market, but all the same, I believe we’d see a 10% to 20% drop in sales volume.

John Young
Partner, Young Homes
Rancho Cucamonga, Calif.
For our company, that’s the number-one issue. If interest rates go up, that will affect the buyers in our price range — entry-level, first-time buyers — who are generally payment buyers. If interest rates go up, payments go up, and that affects their ability to qualify. Already in Southern California we’ve had price appreciation because of demand and lack of supply, especially in the last year. With any kind of spike in interest rates, it would slow down our sales. If they increase even 1%, our company would be very concerned.

Nelson Mitchell
President, History Maker Homes
Fort Worth, Texas
As a builder, I always worry about interest rates going up, but given the fact that rates have been so low over the last year, there is really nowhere else to go but up. We’re in the affordable market, so anytime rates rise, it literally knocks a big segment of our buyers out of the market. But things seem stable enough right now, so I’m not that concerned. Interest rates are at 40-year all-time lows, so it’s still a great time to buy a home, especially for the first-time buyer. The problem is educating the Generation X buyers or first-time buyers. They have never really seen high rates, given the cycle we’ve been in, so they see 7.75% and think that’s a terrible rate when really, historically, that’s a pretty decent rate.