When you pose an open-ended question like this, you’re bound to get a myriad of answers that sway from a definite YES to a definitive NO. Who’s right? Well, like most pragmatic conversations start…it depends. Let’s look at 2 extreme scenarios.
Answer: Yes, rising mortgage rates will put off some buyers.
When money is more expensive, some potential home-buyers will not be able to afford a home. It’s that simple. Rising rates means the cost of borrowing is more expensive. Last year, you could get a 30 year loan in the low 3s and now you in the mid 4s. Is that a huge change? Not
really but 1% point can make or break a deal for first-time home-buyers. Some potential home-buyers will still consider renting as rates go back up as many have the mentality that they will not want to
“force a deal”. If the mortgage is not right, then don’t try and force it. Although prices seem to be rising nationwide on average, home-buyers who are on a tight budget should not buy a home on the hopes that the value of the home will rise. Rising prices are a plus but one should buy a home based on their monthly budget – what he/she/they can afford – not what the “expected value” of their home will be in 6 months from now. Also – potential home-buyers may be discouraged by the APR that lenders set
Answer: No, rising home loan rates will not discourage home-buyers.
Aggressive home-buyers and investors who deal in all-cash don’t really care about the rise in interest rates. Right now, home values are still below their peaks and investors can make a solid monthly cash-flow based on market rents versus market home prices. Also – one should remember that home loan rates are still near record lows. Yes, they have creeped up in the mid 4s for a 30 year fixed but on the whole that is still really low! Remember at the height of the market in 2006 when rates were around 6.5%? Yeah – people were still buying then. Also, if you want an accelerated mortgage, you can opt for a 15-year loan and get a rate in the 3s. Yes, your monthly payment will be higher but you’ll be paying less in interest over the course of the loan. Also – many potential home-buyers are not scared from 1 point percentage gain in a 30-year fixed rate. As you get into the mid-market like $300-$600K homes, people who can afford a $2500 per month payment can most likely afford $2750 per month.
So – to answer the question “will rising mortgage rates scare off homebuyers?” Answer: Depends who you ask.