News & Opinions
The latest news and insights from Hanley Wood’s outspoken experts and key thought-leaders throughout the residential and commercial design and construction industry.
Rising Mortgage Rates Giving Would-Be Homebuyers Jitters
Jed Kolko / Trulia / July 10, 2013
Rising mortgage rates are the top worry for people thinking of buying a home someday, and 56% of Americans say they would be discouraged from homeownership if rates reach 6%. But pay more attention to what consumers do than what they say.
After years of low-and-lower mortgage rates, the 30-year fixed rate shot up from a near-historic-low of 3.35% in early May to 4.46% in late June before settling back to 4.29% last week, according to Freddie Mac. The rate increase was sudden and steep, but not a surprise. Economists and forecasters have been waiting for rates to go up for two reasons: (1) the strengthening economy tends to push up rates, and (2) the Fed is expected to pull back on bond-buying and other measures that have kept rates low, which they reaffirmed in mid-June. By historical standards, rates are still low: remember that mortgage rates hovered around 6% for most of the 2000s, 7-9% in the 1990s, and above 10% in the 1980s. Nonetheless, the recent rate climb has been steep.
What Consumers Think of Rising Rates
Consumers are anxious about rising mortgage rates. Trulia surveyed more than 2,000 people during June 24-26, after rates rose sharply. We asked what their biggest worry would be if they were to buy a home this year. Among all consumers who plan to buy a home in the future, 41% said their top worry is that mortgage rates would rise before they actually bought. The next biggest worries were that prices would rise before they actually bought (37%) and that they wouldn’t find a home for sale that they like (36%).
How high do mortgage rates have to rise before consumers are discouraged from buying a home? Among consumers who plan to buy a home someday, 13% said that mortgage rates of 4% (which is what the rate had climbed to when the survey was conducted) were already too high for them to consider buying a home. Another 20% said they’d be discouraged from buying a home if rates reach 5%; yet another 22% said they’d be discouraged from buying a home if rates reach 6%. Combining these groups, 56% of consumers who plan to buy a home someday would be discouraged from doing so if rates reach 6%. Among renters who plan to buy a home someday, 62% would be discouraged from doing so if rates reach 6%.