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Mortgage rates have gone up slightly since late 2017. At that time, they were below 4 percent. Lately, the average is around 4.75 percent for a 30-year fixed-rate mortgage loan. But despite rising mortgage rates, there’s good news:
- Rising mortgage rates don’t have to stifle your dream of owning
- In fact, a new study by Redfin shows that rising rates aren’t scaring off many shoppers
- Rates remain affordable, even if they are a bit higher today. They could also drop back down
Learn the facts, and crunch the numbers. You’ll likely find that minor rate fluctuations shouldn’t affect your ability to buy a home.Verify your new rate (Dec 12th, 2018)
What the research found
A recent survey of potential buyers by Redfin reveals some interesting findings:
- Only one in 20 would call off their search if rates rose above 5 percent
- One in four said such an increase would have no impact on their search
- Nineteen percent would increase their urgency to find a home before further rate increases
- Twenty-one percent would look in other areas or search for a more affordable home
- One-third would slow down their search to see if rates came back down
How to read between the data
Taylor Marr, senior economist at Redfin, says these results are telling.
“Only a small share of buyers will scrap their plans to buy a home if rates surpass 5 percent. This reflects their determination to be a part of the housing market,” he notes.
Marr says buyers are well aware that rising mortgage rates mean higher monthly payments. Yet buyers are willing to make compromises. And rates remain very low, historically.
“By historical terms, 5 percent mortgages are not that high. A rate below 7 percent is really a good deal on long-term money,” Joshua Harris, clinical assistant professor of real estate at NYU’s Schack Institute of Real Estate, says. “Plus, rents are generally high. So even at 5 percent, many buyers will still be saving money on monthly housing costs.”
Marr agrees, adding that rates are rarely the driving factor in a home purchase decision.
“Most of the pressure buyers feel comes from high home prices. It also comes from competition for a limited number of homes for sale. In working with buyers, we find that the decision to buy a home is primarily influenced by life events.”This includes a marriage, new job, or new child rather than the current mortgage rate,” adds Marr.
“Yes, rates influence the price of the home purchased. But they don’t often damper that person’s determination or interest in owning a home.”
Why rates haven’t gone higher by now
Many factors affect mortgage rates. But the truth is, they haven’t climbed much in the past several months. And that’s despite two Federal Reserve rate hikes so far in 2018.
“The Fed has taken a cautious approach to raising rates since the recovery began. And mortgage markets have responded in a slow and conservative way. Inflation has also been low since the recovery began. That has also kept rates historically low,” says Marr.
Also, “competition from lenders has kept rates low for borrowers. But this condition may not last forever,” notes Harris. “Inflation and economic growth pressures should push rates higher over time.”
Harris wouldn’t be surprised if rates climb another quarter point or half point by the end of the year.
What you can do
Experts recommend the following steps:
Strike now if you can afford it. “While rates are going up, so are home prices in most markets,” says Harris. “The job market is great. Many are seeing wage growth in many sectors. These forces will push rates up and give people more money to spend on a house. So waiting can be a very costly decision if you need a house and don’t want to rent.”
Get your financial house in order. Shop around with different lenders. Get preapproved for a loan. “Ask questions and understand the monthly payments you’ll need to make,” suggests Suzanne Hollander, real estate attorney, broker and Florida International University instructor. Will your income be able to cover the principal, interest, taxes and insurance? Will it provide enough money to live the lifestyle you prefer?”
Be realistic about your goals and means. “Make sure your expectations stay in line with your budget. As rates increase, you may need to adjust your search. That may mean looking for a smaller home or another location,” Marr says.
Don’t sweat a minor rate hike. “So long as you intend to hold the home for at least five years, these small fluctuations shouldn’t affect your decision to buy,” Harris adds.
With economic gains outpacing mortgage rate interest rates in many markets, you may be better able to buy a home today than during the Great Recession, when rates were low but so were incomes.Verify your new rate (Dec 12th, 2018)