Magic Mortgage Rate to Impact Housing Market
Magic Mortgage Rate to Impact Housing Market
Mortgage Rates: The Tipping Point for Homeowners
A new survey conducted by Zillow has shed light on the “mortgage rate tipping point” at which homeowners are likely to sell their properties. It revealed that homeowners with a mortgage rate above 5% are almost twice as likely to say they plan on selling their home in the next three years than those paying a rate below 5%. This finding underscores the impact that rising mortgage rates can have on the housing market.
As the Federal Reserve continues to raise the federal funds rate in an attempt to combat inflation, consumers are facing higher commercial interest rates, particularly mortgage rates. According to recent data, the average 30-year mortgage rate now stands at 6.81%, compared to 6.78% last week and 5.54% a year ago. While this is still lower than the long-term average of 7.74%, it represents a significant increase. Similarly, the average interest rate for a 15-year fixed mortgage is now 6.11%, up from 6.06% a week ago and 4.75% last year.
The impact of these rising rates is further reinforced by the findings of the survey. Around 80% of mortgage holders reported having a rate of less than 5%, while 90% reported having a rate of less than 6%. Additionally, almost a third reported having a rate of less than 3%. Homeowners who already have a relatively low interest rate are therefore hesitant to sell their home and remortgage at a higher rate.
This reluctance to sell can, in turn, have a significant impact on housing supply. As homeowners find themselves “locked-in” to their current mortgages, there is a shortage of housing options, limited resale supply, reduced homeowner mobility, and upward pressure on housing prices. A survey by Redfin reported that mortgage payments in March reached a high of $2,563, up from $1,988 the previous year. Moreover, current monthly mortgage payments are now more than twice as much as they were in 2020 and 13% higher than a year ago.
Orphe Divounguy, a senior ANBLE at Zillow Home Loans, offered his perspective on the matter: “We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices.”
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However, there may be some hope on the horizon. As inflation cools down and more mortgages drop into the 5% range, housing inventory could increase. Zillow’s survey found that 23% of homeowners are considering selling their homes in the next three years or currently have their homes listed for sale. This is a significant increase compared to last year when only 15% of homeowners reported the same. Nearly 40% of homeowners who are considering selling within the next three years have mortgage rates above 5%.
The impact of mortgage rates on the housing market is undeniable. As rates continue to rise, homeowners with favorable rates are reluctant to sell, leading to a shortage of available properties and increased housing prices. However, as more mortgages fall within the 5% range and inflation stabilizes, housing inventory could see an upward trend. Until then, potential homebuyers may face challenges in finding suitable options at affordable prices.
Related Content: – Mortgage Rates and Payments Keep Rising, Creating Market Misery – Mortgage Calculator: Find Your Monthly Payment – Find The Best 30-Year Mortgage Rates – How to Shop for a Low Mortgage Rate
