According to the results of a new online survey, Americans are less concerned about raising mortgage rates than they are about being able to get a mortgage or finding a home they like. The survey, featured in this article from Trulia, shows that mortgage rates would need to be higher than 6% to discourage prospective homebuyers from buying a home.
While the jury is still out on what the Federal Reserve is going to do about the Fed Funds rate increase, there is certainty that it will happen at some point in the near future. When the Feds decide to raise rates, any increase will be nominal and gradual. The anticipation is that the initial increase will be only 25 basis points (e.g., from 3.75% to 4.00%). This is still about 50 basis points lower than the high reached in the summer of 2013 when the Federal Reserve first announced that it would start fading out of its easy monetary policy.
If rates increase 25 basis points, mortgage rates are still at historical lows and exceptionally favorable for homebuyers. The actual impact on a typical homebuyer will be marginal, but this really depends on the buyer’s budget. According to a new survey conducted online by Harris Poll on behalf of Trulia from September 14 -16, 2015 among 2,031 U.S. adults 18 and older, 69% of Americans who would ever buy a home said $250,000 or less is the maximum price that they would be willing to pay to buy their first or next home.
So for a buyer with household income of $60,000 and 20% down payment, the increase in mortgage rates on a 30-year fixed rate loan from 3.75% to 4.00%, would mean that the maximum amount they could spend on a home would fall from about $308,000 to $301,000 – keeping within the budget of most Americans. The drop is relatively larger for a buyer with household income of $100,000, but their budget is also relatively larger.
Long story short, an increase in rates would not turn people off from buying a home, but it may slightly lower the price range in which they are looking to buy.
Most importantly though, if the Federal Reserve decides to raise rates this year, it will be because they are confident that the economy will weather any short-term shocks. Over the longer term, the strong economic fundamentals, including robust job growth, better-paying jobs, rising wages, strong consumer demand, and demographic currents in favor of the housing market will boost demand for homes.
