Some Homebuyers Would Fold if Mortgage Rates Go Higher
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That’s the percentage of people who would cancel plans to buy a home if mortgage rates exceed the pre-pandemic level of 3.5%—a milestone that is rapidly approaching—according to a survey by real estate firm Redfin.
Rates on a 30-year fixed-rate mortgage have been inching closer to that magic number, thanks to the $1.9 trillion American Rescue Plan, Redfin’s chief economist Daryl Fairweather said in a commentary earlier this month. The Mortgage Bankers Association saw average rates climb to 3.36% the week ending March 19, up 0.5 percentage points from their near-record lows of 2.86% at the beginning of the year, while the average rate calculated by Freddie Mac rose to 3.17% by March 25, up 0.08 percentage points from the week before.
Even small movements in rates can have a significant impact on home shoppers’ buying power, with buyers being able to make the same monthly payments on significantly more expensive homes when rates are low.
Those rates have been low by historic standards and have helped fuel the pandemic’s housing boom. The recent rise in borrowing costs hasn’t done much to quelch the enthusiasm of homebuyers so far, but that could change if they get back to pre-pandemic levels, and if Redfin’s poll is any indication.
In addition to the 10% who said they would cancel their homebuying plans outright, a further 17% would slow down their search to see if rates go back down again, while 15% would look in other areas or for a smaller home to keep their payments down. Yet, 14% would actually shop with increased urgency, to get while the getting is good.
“The uptick in mortgage rates is likely fueling more bidding wars in the short term because house hunters are rushing to buy homes before rates rise even further,” Fairweather said in a commentary on Thursday. “If mortgage rates move significantly higher, we’ll likely see some buyers move to the sidelines, which will curb competition in the long run.”