Interest rates

Rising interest rates could put the brakes on home buying, says M&T CFO | Business premises

Rising interest rates are pushing up the cost of buying a home, which could lead to slower sales and more modest increases in house prices, said Darren King, chief financial officer of M&T Bank.

Freddie Mac said the average rate on a 30-year fixed mortgage was 5% for the week ending April 14 – the first time in more than a decade that mortgage rates have reached this level, and in up from 3.1% in December.

“You will likely see a slight slowdown in (home buying) activity and a slowdown in the rate of home price appreciation due to the increase,” King said on Wednesday, as M&T reported its results for the first trimester.

Refinance activity “has largely run its course because rates are now high enough to exceed what people could pay,” he said. But the bank also expects to see an impact on the home buying side of the business.

A lack of housing inventory remains a major factor, King said.

“I think the problem is just that there are more people looking for homes than there are homes available right now in our community,” he said.

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Darren King, CFO of M&T Bank.

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The Buffalo Niagara Association of Realtors said as of the end of March, there were only 1,100 homes available for purchase in the eight county area, down 50% from two years earlier. Registrations in March were only slightly above February’s record low.

Mr. Ryan Gorman, CEO of Coldwell Banker Real Estate, discusses whether a mortgage rate above 5% will reduce some of the heat in the US housing market, and how so many homeowners don’t know how much their property is worth. To access CNBC’s exclusive live video, subscribe to CNBC PRO:

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Freddie Mac chief economist Sam Khater said that as Americans face high inflation, “the combination of rising mortgage rates, high home prices and tight inventories makes continued most expensive home ownership in a generation”.

Rising interest rates could cause potential buyers to rethink their target price, King said.

“What people understand is the monthly payment they can afford,” he said.

Nationally, the Mortgage Bankers Association reported that mortgage applications for the week ending April 15 fell 5% from the previous week. The organization forecast that total mortgage origination volumes would fall by a third this year, due to a sharp drop in refinancing activity.

M&T does not expect to see this level of decline in all territories served by the bank, King said. And although prices have risen in the Buffalo market in recent years — including a 12% increase in the past 12 months — it is still among the most stable markets in the country, he said.

“Some of our geographies aren’t as volatile, so we don’t expect to be as down as the industry,” he said. “But you can’t outrun the change in the rate environment.”

M&T in the first quarter reported net income of $362 million, down 19% from $447 million a year ago. During the quarter, M&T recorded expenses of $17 million related to its acquisition of People’s United Financial. The deal closed on April 1 and M&T plans to convert People’s systems and branches in September.