Higher mortgage rates and home prices are weighing on homebuyers
While the housing market has certainly made a strong rebound from the depths of the financial crisis, higher mortgage rates and home prices are weighing on homebuyers across the nation.
Wall Street is not the only crowd noticing the rapid climb in interest rates. According to a recent survey from Redfin, a technology-powered real estate brokerage, 63 percent of respondents said that rising mortgage interest rates are making it harder to afford a home, while 33 percent decided to speed up their home search in the hopes of hedging themselves against even higher rates. On the other hand, 20 percent have slowed down their search.
Sixty-three percent of respondents believe now is a good time to purchase a home, representing a three percent decline from the previous quarter and the first drop in three quarters. On a more local level, 24 percent said that now is a good time to buy a home in their own neighborhood, compared to a peak of 48 percent in the fourth quarter of 2012.
“Our survey results underscore buyer sensitivity to this summer’s mortgage rate fluctuations,” said Redfin economist Ellen Haberle. “Should interest rates spike again in the coming months in response to a tapering by the Federal Reserve of asset purchases, we could see a significant drawback or even a temporary freeze in buyer activity.”
In addition to higher interest rates, low inventory levels and high investor demand are boosting home prices in many regions of the country. According to CoreLogic, home prices jumped 12.4 percent in July from a year earlier to post their 17th consecutive month of year-over-year gains. Meanwhile, Trulia reported earlier this month that asking home prices rose 11 percent in August compared to last year.
Mortgage rates are still low on a historical basis, but the recent rise is affecting affordability when combined with rising home prices. In the second quarter, 69.3 percent of new and existing homes sold were affordable to families earning the U.S. median income of $64,400, according to the National Association of Home Builders. That is down from 73.7 percent in the first quarter and is the first reading below 70 percent since late 2008.
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