Interest rates for home mortgages are double what they were a year ago, pushing some potential homebuyers out of the market. Rates for new apartments and other rental projects are also on the rise, causing monthly rental rates to increase.

But panelists on the Business Record’s recent virtual discussion about the residential real estate sector cautioned homebuyers and sellers as well as renters not to panic.

“One thing I want to stress is ‘don’t believe everything you’re hearing,’ especially in the national news,” said Jen Stanbrough, broker/manager for Jen Stanbrough Real Estate and president of the Des Moines Area Association of Realtors.

“It’s been pretty overwhelmingly gloom and doom,” she said. In the Greater Des Moines market, “we’re still seeing buyers buy homes and we’re seeing sellers who are taking the leap and entering the market and listing their homes. They are still selling their homes … even with a little bit higher interest rate.”

While average interest rates for 30-year fixed-rate mortgages have dropped slightly in recent weeks, they remain above 6%, double what they were in December of 2021, data from Freddie Mac shows.

Those higher rates are pushing some buyers out of the market, said Tracy Frette, senior mortgage lender at Lincoln Savings Bank.

“People who are feeling the biggest impact are those with annual incomes below $50,000,” Frette said. “Many first-time buyers with single incomes have been impacted. Even clients making $70,480, which is 80% of the area median income and has been the limit for many first-time homebuyer products, are finding financing a bit challenging.”

Low down-payment programs remain in place and underwriting guidelines continue to be flexible, she said. Other products such as adjustable-rate mortgages are available to buyers, she said.

Higher mortgage rates are prompting increased demand for apartment units, said Kris Saddoris, president of development at Hubbell Realty Co. “We don’t have enough units coming online. … We need to continue to offer a lot of different options.”

Hubbell has three senior living communities under construction in the Des Moines area – Adel, Pleasant Hill and Waukee – that when completed will help open up existing single-family houses and other residences to potential homebuyers and renters, Saddoris said. The Edencrest developments “are allowing us to turn stock over. First-time homebuyers and others are able to come in and buy up those houses that the people moving into Edencrest are selling.”

Caliber Iowa, a Central Iowa residential development, construction and property management firm, is also adding new products to the residential market. In August, construction was completed on the Standard, a 185-unit upscale apartment development in Ankeny. About 75% of the units have been leased, said Nick Jensen, owner of Caliber Iowa.

“The people who are renting these units are renter-by-choice,” said Jensen. “They can afford to live in a for-sale townhome, but for whatever reason, they’ve chosen to rent. … Part of it may be the amenities like the underground parking.”

Caliber Iowa has two similar projects planned or under way – one in Waukee and the other in Urbandale. 

Panelists in the Project515 virtual discussion talked about a variety of other things. Here are some highlights:

Jake Anderson, city administrator, Grimes

Slowing residential construction

 “Development is slowing down. Last year, we issued around 180 permits for single-family homes. We’re on pace to do half of that this year. … There’s a lot of inventory on the market, but construction costs and interest rates are drivers there, too. We’ve got a number of multifamily projects that have been permitted and a number of rezoning requests for multifamily and townhome projects. … The single-family homes that we are seeing get built are in housing developments where purchase prices are well in excess of $500,000. We’ll get some land opened up for more medium-priced houses, but for the most part we’re seeing more higher-end development of single-family homes.”

Tracy Frette, senior mortgage lender, Lincoln Savings Bank

Where are interest rates headed?

“When experts predicted this year’s rates at the end of 2021, they thought we’d be around 4.5%. That clearly did not happen. We are above those expectations. Many factors affect mortgage rates: economic data, inflationary pressure, the stock market, geopolitics, as well as other global events such as natural disasters, the war in Ukraine. The Mortgage Bankers Association has projected rates to moderate in [the first quarter] of 2023, to around 6.25%, and moving back down through 2023 into the [5.5% range] towards the end of the year. I’m really hoping that the Mortgage Bankers Association’s prediction holds true.”

Nick Jensen, owner, Caliber Iowa Development

New condo offering

Currently completing construction of the Collier in Ankeny. “We just brought it to market 100 days ago. It’s a 24-unit building in the center of Prairie Trail. We’ve been able to execute contracts on 13 of those units. … It’s a unique product that we took a risk … that there’s buyer demand for. The homes that we build are in the mid- to upper-level price range, and that’s a product that seems to be still moving and selling. I think the buyers for those that are coming in are able to put in more cash or have less of a loan, so that interest rates don’t impact them as much.”

Kris Saddoris, vice president, development, Hubbell Realty Co.

Need for rental properties

“There will be a total of 100 [apartment] units that come online in all of next year downtown, and that’s not enough. That’s what the challenge will be: We need growth in housing. … We don’t have enough units coming online. … We need to continue to offer a lot of different options. Inflation is always our friend on the rental end because rental people have to stay longer because they cannot make the bounce over to purchase. But that also means we’re not opening up those apartments for people to come into our market. So it continues to be a challenge for us both ways.”

Jen Stanbrough, broker/manager, Jen Stanbrough Real Estate and president, Des Moines Area Association of Realtors

Buyer’s or seller’s market?

“We’re entering a bit of a recovery phase right now. We’re back to an even market – it’s not a seller’s market or a buyer’s market. … It’s giving buyers a chance to breathe, and to really take time throughout the process. They can come in and actually meet with a real estate professional. … Over the summer, we were going into houses where there may have been 15 other people looking at a house or waiting on the doorstep when I was showing a house. I had to tell my clients, ‘If you want this house, you have to make an offer today.’ … We saw a lot of buyer’s remorse. … We’re not seeing that now.”

Carrie Woerdeman, director of development, Kading Properties

Supply-chain challenges

 “We’re on a supply-chain roller coaster, from the challenges in obtaining lumber and siding at the start of the pandemic to windows when Windsor Windows was blown offline last year with the December tornado. Now we’re struggling to get electrical materials. It’s just a real challenge to keep projects moving forward with an inability to get supplies.”

Watch the video

To watch the Project515 panel discussion on the office sector, go here.