Sienna development

Homes are under construction in the fast-expanding Sienna development. Fort Bend County, like many places across the country, is facing a housing shortage amid unprecedented demand for homes. (Photo by Matt deGrood)

Interest rates for homes across the country are spiking in the wake of news that the U.S. Federal Reserve plans to hike rates in a bid to tamp down on inflation, but experts say the trend should do little to dampen the real estate market in Fort Bend County.

Fort Bend is one of the fastest-growing counties in the country, increasing from a population of about 585,375 in 2010 up to about 822,779 in 2020, according to numbers from the U.S. Census Bureau.

“The market is the hottest it has ever been, especially so in Fort Bend County,” said Kevin Riles, a Missouri City-based commercial realtor who is an expert in the county’s commercial and residential markets. “It’s because of all the amenities. So, the caveat is that when you raise the rates, you take what elements of the population can afford down. For instance, if you qualified for a $250,000 mortgage previously, the hike might bump you down to $225,000.”

The U.S. Federal Reserve earlier this month raised interest rates by one-half percentage point – the first increase in more than two decades – as a means to fight inflation, according to a CNN Business article. Administrators with the federal reserve have hinted more increases might be on the horizon, according to the article.

On a practical level, that will have shorter-term consequences for the residential real estate market compared to commercial, Riles said.

Essentially, there are three parts to every loan rate that a mortgage company offers, Riles explained. The first part is the base rate, the second factors the risk of the loan and the third part is where companies generate their profits, he said.

The rate hikes are affecting the base part of the rate, Riles said. But whereas residential rates can be locked in during the terms of a loan, commercial rates are adjusted every five years, he said.

Therefore, they’re less dependent on quick changes in the market, like what is happening right now, he said.

“From what I’ve seen, there’s so much pent-up demand in Fort Bend County – there are just more buyers than there are houses to sell,” Riles said.

Dave Krichmar, a Houston-based mortgage banker, agreed with Riles’ assessment of the county’s market.

“What you are starting to see is a cooling in the market, where previously maybe you’d get 10 to 12 offers a home, that number has been slowly decreasing,” he said.

But because there’s a shortage in homes and the county’s average household income is so high, homes will likely continue to sell, he said.

The biggest outstanding question is how developers might react to a cooling in the market, Krichmar said.

“Because this is largely a supply problem, it means that, while, yes, you might see a cooling from where the market was, it will help values stay consistent versus plummeting,” Krichmar said.

Local real estate experts aren’t the only ones who’ve noticed a shortage of homes in Fort Bend County.

More than 10,000 new homes are projected to come on the market in 2022, compared to about 9,350 in 2021 – an increase of about 21.35 percent, according to a report prepared by the Fort Bend County Central Appraisal District.

But demand is far outpacing the new homes, according to the report.

The central appraisal district is a subdivision of the state that appraises property for a taxing unit within the boundaries of the district, according to the district’s website. It uses a standard formula for calculating the appraised value of a home.

Still, buyers today are seeing drastically higher interest rates than someone who purchased a home as recently as January.

Those looking for homes today should be prepared for rates in the 5-percent range, versus about 3 percent, Krichmar said.

“Eventually, everybody adjusts, but this is happening so quickly, I think there’s a shock,” he said.

Federal experts are anticipating rates might continue to rise through the year, and could increase to 6 percent and higher, Krichmar said.

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