Threat of higher mortgage rates likely to boost home purchase activity

Almost half of potential home purchasers in a recent survey would likely accelerate their activities if mortgage rates reach 3.5%, but a scant few would cancel their plans, Redfin found.

The average for the 30-year fixed rate mortgage reached 3.22% this week, its highest point since May 2020, according to Freddie Mac. By the end of this year, rates should reach 3.6%, which will make buying a home less affordable, Redfin Chief Economist Daryl Fairweather said.

"Over time, that will put the brakes on demand and put an end to double digit annual price growth," Fairweather said in a press release. "But in the short term, this increase will light a fire under homebuyers and make for an extremely competitive January."

Of the 1,092 survey respondents planning to buy a home in the next 12 months, 47% probably would act with more urgency to enter the housing market if rates continued increasing. Another 29% would plan to either look at a less expensive location or consider buying a smaller house.

Delaying their activities and waiting for a drop in mortgage rates is the action for 14%, but 7% said they would not change their plans. Only 2% would ditch the decision to buy a home in this scenario.

The survey was conducted for Redfin by Lucid between Dec. 10 and Dec. 13.

In a separate December survey from Fannie Mae, 66% of consumers said it's now a bad time to purchase a home, up 2 percentage points from November. The share that called this a good time to buy fell 3 percentage points to a record low, at 26%.

"Among homeowners, the 'good time to buy' sentiment fell 30 percentage points over the past year to its current level of 30%; for renters it fell from 37% to 21%," Fannie Mae Chief Economist Doug Duncan said in the press release for the latest Home Purchase Sentiment Index. "Even though demand remains strong, a majority of consumers clearly have reservations about purchasing a home at current prices."

Over half of the respondents, 56%, said they expect mortgage rates to rise over the next 12 months, while 30% believe they would remain the same. Just 4% predicted rates may decrease.

The Fannie Mae National Housing Survey was conducted from Dec. 1 through Dec. 17.

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