Since 2021, interest rates for home mortgages have more than doubled, causing challenges in the residential real estate market.

But even with higher rates, panelists on the Business Record’s recent virtual discussion about the residential sector noted reasons for optimism.

In the coming year or two, rates for mortgages are expected to trend lower, opening the door to home ownership to more people, said Jackie Benson, a vice president and economist for Wells Fargo. “There are some bright spots on the horizon for the housing market.”

Rates for home mortgages have dropped each of the past five weeks, data compiled by Freddie Mac shows. Last week, rates for 30-year fixed-rate mortgages averaged 7.22%, down slightly from the previous week’s average rate of 7.29%.

“As mortgage rates have trended lower … mortgage applications have actually increased every week of [November],” Benson said. Still, mortgage applications are well below what they were prior to the pandemic and the Federal Reserve’s benchmark interest rate hikes, she added.

Homebuyers who left the market because of the lack of homes for sale and fierce competition for the ones that were for sale are returning even with higher interest rates, said Erika Hansen, who operates Erika Hansen Real Estate in West Des Moines and is first vice president of the Des Moines Area Association of Realtors.

“Buyers are feeling less pressure from the market,” Hansen said. And, even with higher interest rates, buyers are able to have inspections done on homes and negotiate with sellers on such things as paying for some or all of the buyers’ closing costs on a loan, she said.

A wide range of topics were covered by panelists during the Project515 virtual discussion. Here are some highlights:

Adjustable-rate mortgages
Jackie Benson, vice president and economist, Wells Fargo:
“At the end of 2021, about 3% of applications involved adjustable-rate mortgages. Today, it is closer to 10%. If you think back to when [ARMs] were really popular – right before the housing bust – ARMs were about 36% of applications. There were a lot of factors that were boosting the use of [adjustable-rate mortgages] then that no longer apply.”

Interest rates and home prices
Erika Hansen, first vice president of Des Moines Area Association of Realtors and owner of Erika Hansen Real Estate: “Our biggest problem right now is that people love their 3% interest rate – they love it so much that they don’t want to move. … The median sale price of a house … is around $275,000, which is still higher than last year [at this time]. The median list price in the market is quite a bit higher at $350,000. … We’re still seeing prices increase. I know that there is a perception that prices are declining. Prices are stabilized right now. We just aren’t seeing a dozen offers on a property like we had been.”

Multifamily amenity trends
Josh Doss, senior associate and mixed-use design leader, DLR Group: “There seems to be a renewed focus on creating a sense of community and connections within the renters. So, expanding on the idea of wellness and connection to nature are some things that we’re looking at. The best amenity on the developer side – things that don’t cost them anything – are connections to public space, trails, wide walking paths. Those are great for the community, and the developers don’t have to pay for them. … Also having access to retail, food and beverage [centers] already adjacent to those developments is important. … We say that young people want to live like they are on vacation, now more than ever. So having those service-style amenities you might see in upscale resort properties or hotel projects … so that people really feel like they’re choosing a community for the lifestyle, not necessarily because they can’t afford a home.”

How rural communities can attract home builders
Matt Daniels, director of operations, Origin Homes:
“Communities need a plan of action. They need buildable lots. If we know that those lots are ready to be built on, we can mobilize and we can get there. A lot of times, community members will come to me and say, ‘What do we need to do? What’s the first step?’ We will review housing needs assessments; we will look for incentives or look for grants, not only for the builder, but for the [home] buyer. … And then also, you need to understand the local community. … It’s a very large effort that can’t be [done by] one person or one builder. “

The need for workforce housing
Abbey Gilroy, executive director, Neighborhood Development Corp.: Workforce housing “is true mixed-income housing. I think the word ‘workforce’ is very broad. It can be market rent; it can be above market rent. There may be corporate-level jobs that are at one level of the income spectrum and then you may have someone who served you your coffee this morning” on another part of the spectrum. “They all need housing.” The first thing a newly hired worker thinks about is “where am I going to live. If we don’t have workforce housing for all income levels available, it’s going to be very difficult to recruit people to work in Des Moines but also retain them in Des Moines.”

What’s at stake if no workforce, other housing?
Glenn Lyons, economic development director, city of Knoxville:
“You really have to redouble your efforts. [In 2023, Knoxville was] designated a thriving community for workforce housing. Developers that apply for [workforce housing tax] credits in Knoxville get extra points and are more likely to be awarded the credits. But, if we don’t have the housing, we’ll go back to the way we were before. We’ll have land, but it won’t be utilized, and we run the risk of not being able to expand our existing industries or attract new employers. People who would normally move here, either buying or renting homes, will keep commuting.”

More online: To watch the video of the Project515 panel discussion on the residential real estate sector, click here.