Home Buyers Not Deterred by Rising Interest Rates 

For over 6 years, Americans enjoyed a period of historically low interest rates, making homeownership more affordable than ever before. Right before the turn of the year, the Federal Reserve Board’s Open Market Committee decided to raise benchmark interest rates and, in effect, mortgage rates. Many experts predicted that rising interest rates would impact the plans of many potential and active home shoppers. However, recent data indicates that while home shoppers are taking into account rising interest rates, most are altering, not cancelling their homeownership plans.  

Check out how various demographics believe rising interest rates will impact their home search and how they’d adjust their plans.  

Overall Home Buyer Response

Increasing interest rates will have minimal impact on overall home buyer behavior according to Zillow’s survey results. Seventy percent of the respondents who are actively searching for a home or plan to within the next year said their plans to buy a home would remain intact, even if mortgage rates rose to 4.5 percent. Furthermore, less than half of current home shoppers said they would look for a smaller home or search in a less expensive area in order to factor a higher interest rate into their purchase. Only 30 percent of home shoppers felt their plans would be derailed or significantly impacted by rates rising to 4.5 percent. These responses indicate that the majority of active home shoppers felt their plans would be unaffected or insignificantly altered by the Federal Reserve’s interest rate hike.  

Minority and Young Adult Response

Certain groups of home buyers revealed a much higher likelihood of adjusting their homeownership plans due to rising interest rates. Asian and Hispanic respondents were more likely to rethink their plan to purchase than their white or black counterparts. Out of the Asian and Hispanic respondents who indicated they plan to buy a home within the next year, 63 percent said they would delay their home purchase, adjust the type of home they are looking for, or search in different neighborhoods if interest rates were 4.5 percent. Comparatively, only 40 percent of black and 41 percent of white respondents said they would rethink their plans.

Similarly, young adults indicated a greater likelihood of rethinking their home buying plans in response to rising interest rates. Fifty-three percent of adults between the ages of 23 and 34 indicated they would reconsider their options if mortgage interest rates were 4.5 percent. In the 35- to 54-year-old bracket, only 39 percent of respondents indicated they’d reconsider. And of those 55 years and older, only 36 percent would reconsider. Older buyers were less concerned by the impact that a hike in interest rates would have on their homeownership plans; this may be explained by the fact that younger buyers are struggling to break into homeownership and even a 1 percent interest increase could put ownership out of reach for them.

Bigger Home Buyer Concerns

Rising interest rates ranked low among the concerns that home buyers reported feeling. The number one concern among respondents was being able to find an affordable home; in other words, concerns regarding the inventory and pricing of homes on the market. Following affordability were concerns about saving for a down payment and qualifying for a loan. Rising interest rates were cited as the 4th most pressing concern, out of the six options presented to the respondents. While rising interest rates might have an indirect effect on some of the other concerns that home buyers have about buying a home within the next year, interest rates themselves are a relatively low-ranking concern.

Despite the recent speculation about the potential effect rising interest rates may have on current and near-future home buyers, home buyers do not appear to be too concerned. Many of them are likely ready to escape the rental crisis they have experienced in the last few years and buying a home is more affordable than it has been in the past, even with higher interest rates. The era of low interest money might nearing an end, but home shoppers are not deterred quiet yet. 

Nate Martinez, RE/MAX Professionals

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