Rising rates discourage some homebuyers

9/12/2013 3:21:37 PM

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The most recent homebuyer survey from Redfin showed that rising mortgage rates are becoming a greater worry to consumers.

"While homebuyers continue to be frustrated by low inventory, this quarter they were nearly equally concerned with rising mortgage interest rates," Redfin stated. "Respondents blamed higher rates for harming their ability to buy a home and for changing the pace of their home search. Also, buyer expectations that prices will continue to rise dropped sharply this quarter. A further indication that the market is becoming more balanced, fewer buyers believe now is a good time to buy."

According to the Redfin Real-Time Homebuyer Survey, which polled 1,722 active homebuyers who recently toured homes with Redfin real estate agents, 63 percent of respondents said that rising mortgage rates this summer have negatively impacted their ability to buy a home. Homebuyers are reacting to rising mortgage rates in different ways, with 33 percent saying increasing rates are causing them to pick up the pace of their home search. Meanwhile, rising rates have caused 20 percent to slow down their pace, with 1 percent saying it has led them to stop searching altogether.

Rising rates could actually improve affordability
While it may seem like increasing mortgage rates would be a hindrance for homebuyers, the fact that rising rates may discourage some from making bids on homes means less demand, which in turn could lead to home prices decreasing.

"There continue to be more buyers than sellers, and that is placing pressure on home prices, with multiple bids common in some areas of the country," said Lawrence Yun, chief economist at the National Association of Realtors. "Higher interest rates are now causing sales to level out ... "

Additionally, it's important for homebuyers to keep in mind that while rates are on the rise, they still remain historically low. The recent increases come on the heels of ultra-low mortgage rates.

Finally, there still remain plenty of loan programs to help buyers save on the costs of mortgage financing. For instance, eligible servicemembers can do away with the typical 20 percent down payment requirement on mortgages with a VA home loan. While VA home loans feature competitive interest rates, they can save veterans thousands on the upfront costs of purchasing a property.

Contact The Federal Savings Bank to discuss low-cost home financing options, as well as special programs available for U.S. veterans.