Rising Rates Could Keep Renters Out of the Purchase Market

The 30-year mortgage rate has increased nearly 50 basis points over the past five weeks, which has hurt refinancings. But purchase activity has “held up pretty well,” according to a new report by Wells Fargo Securities.

This updraft in rates, however, is going to make it tougher for first-time homebuyers and renters to enter the housing market, the June 14 report says.   Research by the National Association of Realtors shows a 20-bp increase to 4% would prevent nearly 500,000 renter households from qualifying for a mortgage.

“A rate increase to 5% would cause nearly 2 million fewer potential renter-households from qualifying for a mortgage,” the WFS report says.

Meanwhile, demand for purchase mortgages has been improving, but that “improvement will be tested by the recent rise in mortgage rates.”

The WFS economics group forecast calls for the 30-year mortgage rate to average   3.93% this year and 4.3% in 2014.

“Rising mortgage rates should not present a major impediment to the housing recovery unless rates rise more than we currently expect,” the WFS economists say.