Lower interest rates not ‘silver bullet’ to easing NH housing crunch

CONCORD, NH – The New Hampshire housing crisis may feel a positive effect when interest rates drop next month, but loosening up the state’s housing supply is still the biggest key, the president of the New Hampshire Association of Realtors said Friday.

Interest rates are expected to come down when the Federal Reserve meets Sept. 18. The Fed doesn’t set mortgage rates, but the federal fund rate is a major factor that affects mortgage rates (the market and inflation also play roles). The amount of the rate drop isn’t set, but inflation, according to figures released Friday, was at its lowest since its peak two years ago, which is an important factor. The other key factor is the monthly jobs report, due out next Friday.

The Fed began increasing rates in March 2022 as a way to combat inflation. Before the increase, the national average on a 30-year fixed-rate mortgage was 3.22%. After the increase, rates rose steadily to a high of 8% in October 2023. Since then, it’s dropped to around 6%.

High mortgage rates dramatically affect the borrower’s monthly payment, so higher rates slow the market down. A borrower with a $500,000 mortgage with a 7% interest rate would pay $3,327 a month, and a total of $1,197,544 over 30 years. The same borrower, with a 4% rate would pay $2,387 a month and a total of $859,348 over 30 years.

“There is no arguing that interest rates are one piece of the affordability puzzle,” NHAR President Joanie McIntire told Ink Link Friday. “But it’s important to keep in mind that 50% of current mortgages are under 4%. Considering that most sellers are also buyers, it’s easy to see why so many homeowners are reluctant to sell their homes and give up those great rates, also knowing that they’ll be faced with very low supply and high demand when buying.”

The NHAR doesn’t make predictions or speculate on economics, but looks at available data, officials said.

McIntire said that the NAR continues to focus on supply, “Which we see as the major roadblock for buyers.”

“Increased supply will go a long way to the meeting the demand of all buyers, but especially those first-time buyers, who make up nearly a third of all sales,” she said.

The median sales price for a single-family home in New Hampshire was $530,000 in July (August numbers aren’t yet available). The affordability index is 57, meaning that someone earning the state’s median income is making 57% of what’s necessary to pay a monthly mortgage bill, including payment on the loan, property taxes and insurance. The affordability index has dropped steadily since it was last 100, near the end of 2021.

July’s sales indicators were slightly more positive than some in the recent two years, showing more choice for buyers, Increases from a year previous included in closed sales, sales volume (the amount of money generated from sales), new listings and overall number of homes for sale in the state. But those were only up slightly.

Inventory was also up slightly in July, to 2.2, which means if all of the homes on the market were sold at the current pace, with no new ones being added, it would take 2.2 months to sell them. Industry experts say that a six-month supply is ideal.

“There is no silver bullet to the state’s housing shortage, but a good starting point is to make the path to development less challenging,” McIntire said. “Re-examining and altering long existing and outdated zoning restrictions will go a long way to creating more affordable homes, making room for the workers we need for a strong New Hampshire economy.”

The state needs 60,000 more housing units by 2030 and 90,000 by 2040, according to New Hampshire Housing’s needs assessment, released last year.

Housing advocates and the real estate have focused for the past two years on easing zoning restrictions to make them more compatible for the kind of development that is needed to develop more inventory. In May 2023, a group led by St. Anslem’s Center for Ethics in Society released the New Hampshire Zoning Atlas, a database of the state’s zoning and land-use regulations, which they hope will catalyze changes that will spur more development.

Nearly 6,000 building permits were issued in the state in 2022, an increase over previous years, but there must be an average of around 8,000 a year between 2023 and 2029 to close the 60,000-unit gap, attendees at the NH Housing Multifamily Conference were told in June.

But progress has been slow. The state legislature, before it adjourned earlier this summer, killed six housing-related funding bills, including for the Affordable Housing Fund, lead mitigation, and the historic housing preservation tax credit, as well as 15 bills that would have increased or supported housing, including those related to ADUs, duplexes, commercial reuse, and the Homenibus bill.