Let’s talk about mortgage rates again, because let’s face it, they’re on everyone’s mind at the moment and they’ve been extremely volatile of late.
Yesterday, I noted that the recent mortgage rate surge wiped out about half of the eight million or so refinance candidates that were still kicking around.
In short, it no longer makes sense financially (not enough savings) for half this group at today’s higher rates.
Of course, for those who still have interest rates in the 5-6% range or higher, there’s still plenty of incentive to refinance I’m sure. It’s just that if they haven’t already, they may never.
Anyway, back in early November, online real estate brokerage Redfin ran a survey, asking 2,415 users (who identified themselves as prospective home buyers) how important mortgage rates were to their home purchase decision.
How Important Are Rates?
Unsurprisingly, the most common answer was “very important,” cited by 34.5% of the respondents. If you throw in “important,” two-thirds of prospective buyers think mortgage rates carry a lot of weight in the purchasing decision.
And they’d be right, seeing that a mortgage rate can push your monthly mortgage payment higher or lower for the foreseeable future. It can also make or break a DTI ratio and as such, a loan approval.
What If Mortgage Rates Increase By 1% or More?
They also asked the same group what they would do if mortgage rates were to increase by one percent or more.
At the time, 7.5% said they’d “give up for now,” while 18% would save more for a larger down payment.
A sizable 28.5% wouldn’t change a thing because they’re “not sensitive to rates,” and 46% would look for a cheaper place.
What’s funny about the survey looking back is that Redfin probably didn’t expect mortgage rates to actually increase anywhere close to one percent.
Rather coincidentally, mortgage rates jumped by about 50 basis points, or half a percentage point. And it’s certainly not out of the realm of possibilities for them to rise another 50 basis points, making Redfin’s hypothetical question a reality.
The company just posted the survey yesterday, so they’ve got the benefit of hindsight to make sense of things.
One of their agents pointed out that home buying is a personal decision related to things like starting a family, or relocating for a job, not just what’s going on in the broader economy. And that’s a fair point.
But my article from yesterday also stated that the ~50 basis point increase in rates was the equivalent of a $16,400 increase in home price. So it’s unwelcome news for even those who say they’re not bothered by it.
Fear-Based Home Buying
Additionally, we’re now seeing what I expected we’d see after the quick jump in mortgage rates – panic. An article from the Seattle Times quotes a real estate broker who said, “They’re definitely panicking.”
There was already a lot of pressure to buy because of the lack of inventory, and now there’s even more urgency to close a deal before the low rates disappear forever.
Some buyers have had to lower their budgets, while others are paying discount points to get the low rate they could have had for free a month earlier.
For me, it’s all sounding irrational and super ominous. The buy before it’s too late mantra just got a shot of adrenaline and FOMO is spiraling out of control.
Nothing about this says “healthy housing market.” It’s just more of the same absurd stuff we saw in the previous bubble, packaged a little differently.
It’s not to say we are headed for disaster tomorrow, but I think in times like these it’s smart to take a step back and look at the big picture.
If you’re rushing to buy a house just to lock in the low interest rate, you might be doing it wrong. The property should be a lot more important than the rate. You’ll be living in the house, after all.
And don’t be so quick to assume the low rates are gone forever. As I mentioned, Trump winning the election was a big surprise, and there’s a lot of other uncertainty in the world today.
There’s a good chance there will be some bumps in the road in the next few months, years, etc., and plenty of chances for rates (and perhaps home prices) to retreat a bit.