Higher Interest Rates Impact Expensive Metro Areas

NEW YORK (MainStreet) — "Under contract" became a too familiar sign for Erin Thornton, a 28-year-old nurse who spent most of the spring looking to buy a single family home in a downtown Denver, Colo.

"I was looking to move in June when the interest rates were low, but every house I looked at went under contract, so I couldn't even get a place," said Thornton, who is still looking to buy a home in the Mile High City. "But, I guess the cost has changed though."

Housing markets in the more costly areas of the U.S. that paved the way for the early half of the housing recovery are starting to feel the pinch of higher mortgage interest rates after a buying frenzy earlier this year.

Thornton's experience is similar to many homebuyers in hot housing markets, such as Denver, San Francisco, Seattle, San Diego, and Miami, where higher interest rates are impacting urban markets with tight inventories.

"Affordability conditions remain favorable in most of the country, and we're still dealing with a large pent-up demand," said Lawrence Yun, chief economist for the National Realtors Association in Washington, D.C. "However, higher mortgage interest rates will bite into high-cost regions."

Inventory conditions continue to favor sellers and contribute to above-normal price growth, said Yun.

The primary housing markets affected by tight markets and increased appreciation values are located in the West, where the market holds a supply imbalance as well as urban coastal areas with highly concentrated populations, according to Seattle-based real estate research site Zillow.com.

"In San Francisco, we're facing an 11% appreciation value, and if you a pay a higher interest rate, then that's a recipe for lack affordability," said Svenja Gudell, a senior economist at Zillow.com.