Interest Rates on the Rise

Do rising interest rates make buying a home a distant dream?

Historically low interest rates fueled buyer motivation, one of the variables influencing today’s seller’s market.

Now rates are on the rise, adding to frustration for those consumers unable to attain their dream home in the current low-inventory and multiple-offer market. 

How high do experts believe rates will go?  How will interest rate increases impact buyer affordability? 

Is it time to give up the search?  Is the dream to own a home becoming a distant one for today’s buyers?

Where are rates now, and where will they go?

In the 1980s, consumers committed to pay an average 12.70% in interest.

Today’s rate is outstanding by comparison.  

Here’s what buyers might expect interest rates to do in 2022, according to a post at Money:

·         Sam Khater, chief economist at Freddie Mac believes rates to grow through 2021, averaging 3.7% in 2022.

·         Selma Hepp, deputy chief economist at CoreLogic expects rates to average 3.4% through the end of 2022.

·         George Ratiu, Manager of economic research at Realtor.com predicts rates to reach 3.5% by year-end, and “we are likely to see sustained inflation well into 2022, adding upward pressure on mortgage rates.”

·         Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors says mortgage rates will remain historically low into 2022.  “…The economy is still recovering.  Hence, consumers shouldn’t panic.”

·         Skylar Olsen, senior director and principal economist at digital real estate and mortgage start-up Tomo expects recent rate hikes are the biggest we’ll see “for a while,” and consumer “confidence will continue to rise and we’ll see rates lift in little fits and starts, unable to rise too much more until the world is not so crazy.”

Recent and pending upticks in interest rates, then, mean that “this could be the ideal time to find a lender and lock in a low rate.”

Another view is that 30-year fixed mortgage rates will grow to 4%, according to the Mortgage Bankers Association forecast as reported at CNBC. 

The group believes total loan origination demand will slip in 2022 by 33% to $2.59 trillion.  Refinancings will drop 62% to $860 billion.

Still, “originations for the purpose of buying a home, however, are forecast to rise 9% to a record of $1.73 trillion in 2022.”

What might rising interest rates mean for buyers?

Cautious buyers in today’s rising rate environment might consider that “Average mortgage rates won’t stay as low as they are today forever, and as they rise, the decades-long housing and mortgage market tailwind will turn into a headwind,” says Mark Fleming, First American Financial Corp.’s chief economist in MarketWatch.

An example is that for a household with an income of $69,000 making a 5% down payment, a rate increase from 2.8% to 3.2% equals approximately $21,500 less in purchase price.  Should the rate jump to 3.7%, this same household would experience a drop of $49,000 in “home-buying power.”

“Rising mortgage rates, all else equal, will diminish their home-buying power, meaning it will cost more per month for a borrower to buy ‘their same home.’”

Is it time for you to bow out of home buying, or is it the perfect time to jump in?

Post authored by Lora Bray.

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