Rising Mortgage Rates Cause Homebuyer Jitters

After years of low and lower mortgage rates, the tide has shifted with a sudden and steep increase. It’s not a surprise to economist and forecasters however it seems to have caught the potential homebuyer off guard. Rising mortgage rates are making homebuyers nervous and discouraged, and many feel it will make home ownership unattainable.

Beginning in early May, the average rate for the 30 year fixed rate mortgage has increased more than one percentage point. The Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) reported the 30 year fixed average rate at 4.57% at a cost of 0.7% for the week ending September 4, 2013. This is in sharp contrast to their report dated May 2, 2013 at an average of 3.35% at a cost of 0.7%. See the PMMS here.

FNMA 30YR Sept13
The Federal Reserve began talking of tapering its massive bond buying program which caused mortgage rates to jump higher in May. Improving economic data has contributed to mortgage rates continued stair-climb higher. Once the Federal Reserve begins to unwind its bond buying program mortgage rates are expected to rise.

Even if the Fed delays the inevitable…it will end and mortgage rates will likely jump when that happens. It’s just a matter of time.

The rise in rates will force many would-be buyers to scale back their purchase plans. Some even giving up their idea of home ownership. Redfin, the technology-powered real estate brokerage, released its latest Real-Time Homebuyer Survey. The sentiment of 1,722 homebuyers in 22 U.S. markets was captured between August 23 and August 26.

In the Redfin survey, of main concern to this group of homebuyers is the effect rising mortgage rates are having. So much so, survey respondents blamed surging rates for harming their ability to buy a home and for having an impact on the pace of their home search.

Here is what the survey found:

  • 63% of respondents indicated rising mortgage interest rates are making it harder for them to afford a home;
  • A majority of respondents said rising mortgage rates caused them to alter the pace of their home search – 33% speeding up their search and 20% slowing it down, with 1% halting their search.

Homebuyers are right to be concerned about the effect of mortgage rates on housing costs.  With higher mortgage rates come higher monthly mortgage payments.  Couple this with the rising home prices and consumers grow more anxious.  This means a homebuyer can afford less house for the fixed monthly payment.

HousingRatesChanceMortgage rates are expected to climb into the 5s by the end of the year or sooner.  Many economist argue that 6% rates could be just a year away as the U.S. begins to return to more normal conditions.  And yes, 6% is considered a more “normal” mortgage rate.

Eventually a return of mortgage rates to the 6% range will happen — so if you are thinking of buying a home sometime in the future, being prepared and taking advantage of the still-low rates (sooner rather than later) while they last makes good long-term financial sense. If you can take advantage of a Lock and Shop program – do it!

About Elizabeth Rose

Elizabeth has over 30 years in the financial and mortgage industry. In tune with the mortgage market, she provides refreshing, unrivaled knowledge leveraging expert resources and delivering results.
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