'It's been a roller coaster': Despite mortgage rates, Mitchell bankers look to turn renters into homeowners

Jan. 10—MITCHELL — After a volatile year in the real estate market that saw interest rates dip to historic lows only to be erased by a year-end surge, it's put up barriers for some Mitchell residents looking to buy a home.

At the start of 2022, mortgage interest rates were hovering around 3% and homes were flying off the market in Mitchell. Cory Marek, a local mortgage loan officer at Plains Commerce Bank, was swamped in the early half of last year as home buyers seized on low interest rates.

Four months later, mortgage rates nearly doubled to above 5% and cooled off a hot housing market.

"It's been a roller coaster the last four months. Two months ago, we were in the 7% range, and now we're back down to around 5% for a 30-year fixed rate mortgage for those who qualify as a first-time homebuyer," Marek said. "It really slowed down buying."

The rate swings created something Marek has yet to see in his five years in the housing industry. In less than a year, Marek said it went from a seller's market to a buyer's market.

Despite mortgage rates hovering around 6% as of now, Marek has been finding ways to help Mitchell area residents become homeowners. And it's been effective, as Marek was awarded South Dakota Housing Loan Officer of the Year in his region for facilitating the most mortgage loans in the Mitchell area last year.

The South Dakota Housing Development Authority is a key entity that Marek said provides avenues for him to drum up mortgages that have monthly payments comparable to average renting prices.

"A lot of people don't know they can buy a home and not come in to closing with any money. South Dakota Housing is one reason that's possible. They have strong pricing and cover down payments and closing costs," Marek said of South Dakota Housing Authority, which is an income-based entity.

Although Marek acknowledges that aspiring homeowners may be a little spooked from the sudden spike in interest rates, he said it's led to a slight reduction in prices of homes. Interest rates aside, the rising prices of homes became a major barrier for younger generations looking to buy a house over the past two years.

According to a 2021 survey conducted by Apartment List — a national apartment rental company — 77% of Millennials said being unable to afford a house was the biggest factor keeping them from buying a house. With prices slowly coming down a bit, Marek said it's created a "good time to buy" and consider refinancing later if rates adjust again.

"It's actually a good time to buy. People were paying $20,000 to $30,000 — well over what prices of homes were listed at," Marek said of the housing market in 2021 when interest rates were as low as 2.6% at one point. "Now, they can get a bit of a deal or get the home at the listing price because of these high rates."

Marek steered clear from predicting where interest rates will go as the Federal Reserve has made a series of historic rate hikes over the past few months in an attempt to curtail rising inflation that's tightening the pocketbooks of many Americans. However, he said refinancing options are a key tool to navigate high mortgage rates and volatility.

"When you get a rate, you are not marrying the rate. You are never stuck at that rate," he said.

Prices of homes also hinge on inventory. And as of now, Marek said there is very little inventory in Mitchell.

"While prices are dropping a bit, they aren't going to go down too much anytime soon here because there is just no inventory," Marek said of Mitchell's housing market.

With the handful of housing developments that are ready to take off in Mitchell, Marek is optimistic that Mitchell's housing market is going to become healthier over the next few years. However, he said builders can't put up homes fast enough to meet the demand.

"We had and still have people from other parts of the country wanting to move here and buy a house. We aren't able to capitalize on that because we don't have the inventory. I haven't seen healthy inventory since I began being a mortgage loan officer over five years ago," he said.

Rising interest rates aren't the only issue stifling home buying.

At a recent Mitchell City Council meeting, David Lambert, regional development director with the Mitchell Area Chamber of Commerce, echoed a growing trend that has the attention of real estate developers building homes: young people are renting, not buying.

"The growing trend away from home ownership to rentals we are seeing in the younger generation, who are saying, 'We really don't want to buy. We are more comfortable with renting, and if you provide us something that provides very little in maintenance and upkeep, we're perfectly happy paying the (rent) amount," Lambert said during a July council meeting.

Marek said the renting trend has hit Mitchell.

"There are way too many people in Mitchell who rent," Marek said.

According to 2020 Census data, the Millennial homeownership rate stood at 48.6%, roughly 20% less than the rate for Generation X and almost 30% lower than Baby Boomers. Data from a survey on Apartment List showed 24.7% millennials who were renting in 2022 plan to always rent.

Marek has set a goal to reverse the renting trend in Mitchell by working to convert 100 renters into 100 homeowners. While that goal is bound by inventory, Marek said he's hoping to start with renters at his own properties.

With over 30 rental properties in the area, Marek has some inventory to start working on his goal.

"My goal is to educate as many renters as possible because a lot of them don't think they qualify. A lot of people think renting is cheaper. When has rent ever gone down? Rent has always gone up," he said. "Your mortgage rates can go down with the refinancing options."

As demand for apartments and rental units goes up, Marek said it will only lead to increased renting prices. In South Dakota, rent went up 18% from 2021 to 2022, according to data from creditkarma.com. The average monthly rent in South Dakota rose to above $900 in 2022, according to Rent.com.

"Now more than ever, renters need to know it can be cheaper to own a home," Marek said.