SCHENECTADY — With a long-running sellers’ market raising the sticker price on houses and high inflation raising the cost of almost everything else, people hoping to buy their first homes have been squeezed for more than a year.

Rising mortgage rates are making the prospect even more costly in 2022.

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Thirty-year mortgage rates were approaching 5% on Friday, a level seen only once and only briefly since the Great Recession 11 years ago.

Even 5% is still quite low, historically. But for a younger audience, it’s higher than they’ve ever seen.

“The buying group that’s going to be hit hardest is first-time homeowners, which is a shame,” said Laura Burns, CEO of the Greater Capital Association of Realtors.

“In 2021, we know that housing prices rose 19% nationwide, which was faster than any time in recent history,” she said, adding that banks may be disqualifying more applicants for loans because the combination of high purchase price and higher interest rate will result in a monthly payment that’s too high for their income.

“It is going to be interesting to see what happens because … this is when you get a reality check for sellers,” Burns said.

The Federal Reserve is expected to raise interest rates several more times this year.

“I think the single biggest impact on the consumer is going to be residential mortgage rates,” said Tom Amell, CEO of Colonie-based Pioneer Bank.

With all else equal, a $200,000 loan costs $955 a month for 30 years at a 4% interest rate and $1,074 a month at 5%. That’s still less than a month’s rent for many apartments, but homeowners bear property tax, insurance and maintenance costs that renters do not.

Over the 30-year term, that extra $119 a month adds up to an extra $42,840 in payments, minus whatever income tax benefit accrues from deductions for the additional mortgage interest paid.

Ideally, Amell said, the 10-year high interest rates will begin to tame inflation that has reached 40-year highs, bringing some benefit to consumers.

Another variable potentially working in favor of prospective homebuyers, he said, is that a tight labor market is driving some salaries higher, and that many people have been saving their money throughout the COVID pandemic.

“There’s more liquidity on the market — consumers have more cash on hand,” Amell said.

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Single-family housing units sold through the Greater Capital Association of Realtors’ multiple listing service had a median sale price of $255,000 in 2021, up 19% from 2019 and up 28% from 2017.

The city of Schenectady has long had some of the lowest housing prices in the region, but price tags within the city have surged at an even greater rate than the region as a whole. The median sale price in Schenectady was $186,000 in 2021, up 49% from 2019 and up 84% from 2017.

City program

HOMES — Home Ownership Made Easy in Schenectady — has two purposes: boosting homeownership in the city (the Census Bureau indicates the owner-occupied housing rate is just 45%, compared with 64% for the county as a whole) and recycling tax-foreclosed homes that are vacant but salvageable.

Maurice Brown III, coordinator of the city program, said rising interest rates won’t work to the advantage of HOMES or its participants.

“It definitely will significantly impact the low- to moderate-income families,” he said.

Brown draws on his experience as a loan officer at financial institutions to boil down the numbers into concepts of value for families he’s working with.

For the broad group of people categorized as “financially disadvantaged,” Brown said, up-front costs of purchase are often a bigger hurdle than the monthly costs.

HOMES connects homebuyers with financial education to help them manage the monthly costs and with grants that help them meet the up-front costs of purchase.

The list of potential sources of financial assistance is lengthy, and not limited to low-income applicants: There also are grants for preservation of historic properties; for Black homebuyers; and for teachers and emergency responders in certain neighborhoods.

“Depending how you’re putting those grants together, it could be stackable,” Brown said.

There is, predictably, a lot of fine print and paperwork. Brown’s job is to walk people through it all.

The year 2020 was an off-year due to COVID, but in 2021, the HOMES program sold 102 properties for a combined gross of $3.7 million, Brown said. In the first three months of this year, the group sold 19 properties for $507,600. 

As of April 1, 74 more sales were pending and 25 structures were available for purchase, along with 270 parcels of land, about 55 of them large enough to build on.

Success story

One of the most recent sales through HOMES was to the Seecharran family.

Satnarine and Natasha Seecharran began the buying process two years ago, were delayed by the pandemic, started the renovation process one year ago, then had to find a new contractor when the first didn’t complete the job.

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The project was a success: The century-old Delamont Avenue house now glows inside with bright tones and abundant lights, and punched-out walls create a sense of openness.

There’s more to do, said Daniel, one of the Seecharrans’ three sons. But it’s now home: They moved in April 1.

The family lived across the street from the vacant house after immigrating from their native Guyana, and they were familiar enough with it to be interested when the city put it up for sale.

There’s a perception, Daniel said, that properties the city forecloses on for tax reasons are falling down. That’s not always the case: This one needed a lot of work but was solid.

The family knew they’d want a new kitchen and bathrooms, and customized living space in whatever house they bought, he said. So why buy a $150,000 house just to tear perfectly functional fixtures out of it?

“That was the shocking part of all of this — buying a whole house for $10,000,” Daniel said.

Renovations by professionals are a condition of sale, and hiring contractors boosted the total purchase price significantly for the family.

Brown and other city employees helped the Seecharrans through the process, Daniel said.

“It was very easy working with the city on this project,” he said.  “From my perspective, one of the biggest things was information — I had to do a lot of research as a private person.”

Brown provided a lot of help.

“Another thing that made us purchase this particular property is this is the heart of Schenectady,” Daniel said. “There’s a big Guyanese population here.”

The timing was a bonus, he added: They beat the interest rate hikes.

Investors welcome

The city’s preference is to sell foreclosed properties to buyers who will live on site, Brown said. But it also sells to investors. Investors have had a mixed record in the city, with some milking properties for profit to the detriment of the surrounding neighborhoods. But others have done good work, Brown said, and the city will consider selling multiple properties to investors who have a strong track record.

JAW Housing has been one such investor, Brown said.

Principal Jermaine A. White said the process has worked well for him.

He bought a two-family house on Davis Terrace for $3,000, spent $120,000 on renovations and was set to close Friday on a $190,000 sale of the building.

A project on Chestnut Street was similarly lucrative. 

White has submitted offers on four more city-owned houses.

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“It’s been great with the city. Working with the Building Department has been great,” he said.

The Rensselaer resident typically buys houses with plans to retain them as rental properties — he owns 36 units — but the profit margin from a sale on the Schenectady properties was too good to pass up.

“The market is so much more aggressive out in Schenectady,” he said.

The economics at play — rising home prices, rising interest rates, inflation — make him wonder how long the housing market can continue at this level.

“As the market continues to go up, first-time homebuyers just aren’t going to be eligible. The person can’t afford it anymore,” White said. “I would say probably next year or the following year, if prices continue to rise.”

White relies on investor financing and construction loans, so mortgage rates don’t directly affect him. 

The cost factor that might finally catch up to him is the prices he pays for construction materials.

“I used to be able to buy a 2×4 for $4. Now it costs $10,” White said. “I think that’s where most of the pricing is going up.”

Carlos Garcia bought a house on 10th Avenue a year ago. It wasn’t a city-owned house, but the city helped by arranging a grant to help with closing costs and inviting him to a homebuyer education class.

“With increasing prices with rent, it was about time I got into a real home,” he said. “It was a challenge. This is my first home. I took the first-time homebuyers program with the city. Once I got through the process, everything else fell into place.”

Garcia built up his credit score before starting the process and latched on to an interest rate that was good then and is really good now. Still, he kept his budget in mind and was determined not to pay more than the asking price, which many homebuyers have to do in the highly competitive market.

“A few of the guys I work with are paying $1,800, $1,900 a month,” he said. “I knew I wasn’t rushing into it.”

The payments are low enough that Garcia can make multiple extra payments each year.

“A lot of people don’t realize that” extra payments slash the total cost, he said. He expects to pay off his 30-year mortgage in 17 years at this pace. 

“I’m trying to set them up for something I never had,” the Bronx native said of his two daughters. “It’s an improvement in life.”

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