Mortgage interest rates have risen consistently over the last year-and-a-half. At that time, rates for the 30-year fixed were just under 4%. Lately, the average is closing in on 5% percent for a 30-year fixed-rate mortgage.
Despite these rising mortgage rates, there’s good news:
- Rising mortgage rates don’t have to stifle the buyer’s dream of owning
- In fact, a new study by Redfin shows that rising rates aren’t scaring off many shoppers
- Rates remain historically very affordable, even if they are a bit higher today
What the research found on interest rates and purchasing patterns
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 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 slightly higher monthly payments. Yet buyers are willing to make compromises, as they understand that actual wages are higher today, making the purchase more affordable. Also, they know that real estate generally appreciates. Finally, today’s rates remain very low, compared to historical norms.
“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.”
What buyers can do now
Most experts recommend the following steps:
Buy 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 together – start the pre-approval process and get qualified 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?”
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 at any time over the last 10 years. Don’t hesitate to reach out to me and find out more!