Rising Interest Rates May Cause 'Sense of Urgency' for Buyers

Jerome H. Powell, the new chairman of the Federal Reserve, says that short-term interest rates will likely be raised this year, in 0.25 percent increments, starting in March 2018. Mortgage rates typically follow the Fed's increases.

Experts say that first-time homebuyers will be affected most by rising rates. According to a 2016 John Burns Real Estate Consulting study, a 1 percentage point rise would translate into 5 percent fewer buyers qualifying for a $300,000 mortgage, Realtor.com reports. "Every time the interest rates go up, you eliminate a group of people who can no longer afford to buy a house," says Don Frommeyer, a mortgage broker at Marine Bank in Indianapolis. "Some people may have to rent for a period of time until they make more money—or buy a smaller house."

And despite the increases, the housing shortage and soaring prices are only likely to get worse because of the big backlog of buyers. Many folks held off from purchasing during the recession because they were worried about their job stability or couldn't afford to buy. Now with a stronger economy, they're entering the market in droves. Many older millennials are beginning to have families or expand their families and simply need the extra space.

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