How Would A Mortgage Rate Of 5 Percent Affect Potential Homebuyers?

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Buyers would be much more likely to look for a less expensive home than give up a house search all together

December 28, 2016

Photo: Pixabay

Homebuyer optimism remains high despite higher home prices, lower inventory, and a sharp increase in mortgage rates. Eventually, something will have to give.

Redfin conducted a survey of 800 of its real estate agents during December. Among the questions was, if mortgage rates increase from 4 percent to 5 percent within the next year, how will this impact the real estate market? In response, 49 percent of agents said that buyers would look for less expensive homes. A little less than 20 percent said the rate increase will not affect the market. Only 15.9 percent said homebuying activity would drop dramatically.

A recent Redfin survey of homebuyers found that only 2.6 percent of respondents said that they would end a house search if mortgage rates rose above 4 percent.

In fact, many agents noted that any negative response to rising rates is likely to be short-lived. Rates remain at historic lows and an increase of even one percentage point is not going to have a dramatic effect on affordability.

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