How lengthy can house costs hold climbing whilst mortgage charges rise? – Shopping for

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Home prices are rising and rising — and buyers continue to compete for a chance to pay them even as mortgage rates have risen a full percentage point over the past six months.

According to real estate analytics firm The Warren Group, the median price of a single-family home sold in Massachusetts last month was $515,000, up 12 percent year-on-year and 28.1 percent above the March 2020 median of $402,000.

In theory, rising interest rates should help curb this type of price growth, as it makes it more expensive to finance a home at the same price. Since the average interest rate on a 30-year mortgage was 5.1 percent at the end of April, according to Freddie Mac, a $500,000 mortgage now costs almost $600 more a month than it did in December, when interest rates were averaging at 3.1 percent lay. It is enough to reduce a homebuyer’s purchasing power by $100,000 or more.

And yet?

“The market is more competitive and tighter than ever,” said Melony Swasey, leader of the Good Boston Living team at Sotheby’s Unlimited in Jamaica Plain. “Even with rising interest rates, demand will not drop.”

Some buyers have seen their purchasing power drop, she added, but there are still enough buyers with enough cash — sometimes it’s equity from a home sale, sometimes it’s money from family members — to keep the competition fierce.

“We’re seeing fewer offers, but the intensity, competition and price jumps are still there,” Swasey said. “And that’s all over the city, in all kinds of neighborhoods and surrounding communities,” including Newton, Brookline, Needham and Melrose.

“We don’t know how long this will last,” Swasey added. “But so far this spring? I don’t think we’re seeing a contraction.”

The crushing competition and lack of homes for sale, particularly in the $500,000-$600,000 “sweet spot,” have penalized first-time homebuyers, said Debbie Aminzadeh, vice president at J. Barrett & Company in Beverly.

“We’ve removed thousands of listings from our location — it’s a big issue and it’s not changing,” she said. “When I look at the offers every day, I am shocked at how few there are.”

With mortgage rates rising and competition fierce, many buyers have had to lower both their price targets and their expectations for accepting an offer. “You have to expect to ask $50,000 to $100,000 too much,” Aminzadeh said. “Let’s say they can afford $600,000 – they have to look at $500,000 houses at most if they’re smart, so they have that buffer zone to outbid them. Otherwise they just turn their wheels.”

The sharp rise in mortgage rates has pushed some buyers out of the market altogether. But many others either have enough money to be flexible or find other ways to make it work.

“Some of them are buying points to lower the rate,” said Nick Marlin, a loan officer at CrossCountry Mortgage. The practice involves a higher upfront payment for a lower long-term interest rate. A mortgage point typically costs 1 percent of the loan amount and lowers the interest rate by about a quarter of a percentage point.

Other buyers are turning to adjustable-rate mortgages, Marlin said, locking in a lower initial interest rate for the first five or seven years and hoping to refinance it before the rate later becomes variable. The average starting rate for a 5/1 ARM (that is, the rate is fixed for the first five years and resets annually thereafter) was still 3.78 percent at the end of April.

Rates on jumbo loans have also risen more slowly, Swasey added.

“If you get a loan of more than $770,000, those interest rates don’t go up as quickly,” she said. “They are increasing, but not as fast as the corresponding rate.”

Warren Group chief executive Tim Warren said the sharp gains over the past two years are a little worrying and certainly brutal for homebuyers. But he doesn’t think we’re in a housing bubble or headed for an imminent collapse.

“From 2000 to 2005, average prices rose at double-digit rates by 10 percent or more every year for six years, and then the market collapsed,” Warren said. If we’re headed for a similar meltdown in housing now, he said, that’s a long way off at this point.

“We’re two and a half years old now,” he said. “When it’s four years old I might lose sleep, and when it’s six years old I’m really worried. But for now, my worry meter is still under control – I’m not predicting a catastrophe.”

Jon Gorey blogs about houses at HouseandHammer.com. Send comments to [email protected]. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter at pages.email.bostonglobe.com/AddressSignUp. Follow us on Twitter @GlobeHomes and Boston.com on Facebook.