Rising mortgage rates could wipe out the increased purchasing power of homebuyers
A new report from Redfin puts into perspective what the slow and steady rise in mortgage rates means for potential homebuyers who have sat on the fence hoping for a lower rate.
A home buyer would lose $ 23,250 in purchasing power with a mortgage rate of 3.25% versus a rate of 2.75%, where he was sitting earlier this year, according to the real estate brokerage.
At an interest rate of 3.25%, a buyer can afford a $ 506,000 home for $ 2,500 per month, compared to $ 529,250 that he could afford on the same budget at a rate of 2 , 75%. In other words, the monthly payment for a home of $ 506,000 would increase by $ 110 with the higher mortgage rate, from $ 2,390 to $ 2,500.
The low rates have helped many homebuyers pay their monthly mortgage payments. Interest rates began to rebound in mid-February after 30-year fixed mortgage rates hit a record low of 2.65% in early January, a five-month continuation of rates below 3% as the Fed was working to stimulate the economy during the recession caused by the pandemic.
In part because of the record lows, there has been a steady rise in house prices, which hit an almost record high of 14% year-on-year in January. The average mortgage rate hit 3.02% in the week ending March 4 – the first time it has exceeded 3% in seven months – and is expected to continue to rise, at least slightly, as the economy is recovering.
Growth in the number of homes under contract has started to slow in recent weeks, but the Redfin report says it’s too early to say whether the trend is the result of winter storms, a shortage of homes for sale, or the rising mortgage rates or whether the trend is likely to continue in the spring or not.
Redfin Chief Economist Daryl Fairweather said: “If the $ 1.9 trillion economic stimulus package that should provide Americans with cash relief and get people back to work is successful, interest rates are expected to return to pre-pandemic levels of around 3.5%. This would change the dynamics of the housing market, although it would not necessarily put the brakes on it. ”
“Financial assistance given to families earning less than $ 150,000 will give more of them the desire and the means to buy a house,” she added. “This will translate into increased demand for affordable housing. It’s different from what we’re seeing now, which is a housing market run by wealthy people buying relatively expensive homes. Higher mortgage rates will also make buyers more price conscious and less likely to bid 10% or more of demand, so we might see some of the intense competition slow down. “
Forty-four percent of respondents to a recent Redfin survey said mortgage rates exceeding 3.5% would have no impact on their home buying plans, while 10% would cancel their plans to buy a home. House.
“The slight increase in mortgage rates has so far had no impact on buyers,” said Ben Stanfield, Seattle Redfin agent. “Rates are still historically low and they still keep buyers in the market. Even though rates are going up, they are not going up as quickly as house prices. If you can buy, it’s a good idea to buy now before homes get even more expensive.
With an interest rate of 3.25%, 68.4% of homes nationwide that were for sale between Jan. 26 and Feb. 25 were affordable with a monthly budget of $ 2,500. With a rate of 2.75%, 70.1% of housing was affordable with this budget.
“Over the next few months it will be important to keep an eye on inflation,” Fairweather said. “Inflation has the potential to change every aspect of homebuyers’ finances: it could change incomes, budgets and mortgage rates. “