Rising Mortgage Interest Rates and the Impact on Housing Markets

Rising Mortgage Interest Rates and the Impact on Housing Markets

At the beginning of 2016, most experts predicted that mortgage interest rates would reach about 4% by the end of the year. But, until recently, those predictions looked to be inaccurate.

Following the presidential election, investors moved their money out of bonds and into stocks, leading to higher rates on government bonds, corporate bonds and an increase in mortgage interest rates.

By December 1st, the rate for a 30-year fixed rate mortgage hit 4.08% with an average 0.5 points, according to the Freddie Mac Primary Mortgage Market Survey.1

Initially, the uptick in mortgage interest rates has the most impact on refinance activity. But what about the home purchase market? What impact will rates have on your home buying and home selling clients?

Higher rates may cause moderation in home price growth

Freddie Mac estimates that price appreciation will be about 4.7% in 2017, compared to about 6% in 2015 and 2016. Also in the forecast: existing home sales are predicted to be at 5.75 million units in 2017 versus 5.97 million units in 2016.2

If higher mortgage rates put a slight damper on overall activity in the housing market, real estate professionals may need to convince sellers to adjust their expectations when pricing their homes for sale.

Affordability can become a challenge, especially among first-time buyers

As higher rates translate into larger monthly mortgage payments, some potential buyers may find that their monthly payments are $50 to $100 higher each month. These extra amounts may not represent hardship for a motivated home buyer with the financial means to absorb the extra payment amount.

However, some potential buyers – especially first-timers and buyers with modest means – may face bigger challenges. Higher monthly mortgage payments impact the debt-to-income ratios that lenders use to underwriter loans. These buyers may need to shop for a home at a lower price point from what they had in mind before mortgage rates began to climb.

Hovering around 4%, mortgage rates are still very low by historical standards. The recent uptick in rates does not have to cause panic. As a buyer’s agent, you can keep your business on track by helping home buyers understand that they are still well-qualified to obtain mortgage financing.

Stearns Mortgage Loan Originators are eager to talk with your clients, and show them scenarios for different mortgage interest rates, as well as an array of home loan solutions. Helping your home buyers choose the mortgage product that best fits their circumstances is all in a day’s work at Stearns.


Source materials
1. Economic & Housing Research. Primary Mortgage Markey Survey. Average Mortgage Rates as of December 1, 2016. Freddie Web. 5 Dec. 2016.
2. Interest Rates Headed Higher. What that Means for Housing. Freddie Mac Monthly Outlook. Web. 30 Nov. 2016. Web. 5 Dec. 2016.



Top Broker Channels. Rep. no. 6M2016. Inside Mortgage Finance, June. 2016. Web. 15 Sept. 2016.

“The 2013 Inc. 5000.” The 2013 Inc. 5000., Aug. 2013. Web. 18 Mar. 2015.
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- By Michael Kearney, Dec 12, 2016