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78% Of Americans Say They Are Pulling Back From The Housing Market Due To Higher Rates

Higher mortgage rates are already changing American behavior as people are rethinking their housing goals by pulling back from applying for a home loan or even shopping for homes, according to a recent Forbes Advisor survey.

Most respondents (85%) say they expect mortgage rates to continue to increase for the next several months up to two years. Already, rates have climbed above 5% in recent weeks—the highest point in more than a decade and far above the 3% average the same time last year for a 30-year, fixed-rate mortgage, according to Freddie Mac.

The increase in rates caused 34% of respondents to pause looking for a home and 32% from applying for a mortgage.

Here’s how higher rates are affecting Americans when it comes to housing, and where they think rates are headed based on recent survey results.

Where Consumers Think Rates Are Headed

Among the 85% of respondents who say mortgage rates will rise, 37% of that group say rates will increase in the next six months to a year while another 27% say it will be within the next three to six months. Conversely, 9% of respondents say interest rates will level off and another 6% predict mortgage rates will fall.

When asked at what interest rate would they stop applying for a mortgage, most respondents (42%) said they would not consider a mortgage at a range of 4% to 5%. Another 27% of respondents say they would not apply for a mortgage when the rate reaches 6% to 7%. Likewise, 33% of respondents said they would not consider refinancing their mortgage at a rate of 5% while 29% said they would stop at a rate of 4%.

How Consumers Are Reacting to Higher Mortgage Rates

Considering current mortgage rates have already exceeded 5% so far this year, Americans are losing their appetite for home shopping and mortgage borrowing.

Most respondents (34%) say they have paused looking to buy a home due to the recent spike in mortgage rates. Another 32% say they stopped applying for a mortgage and 12% halted refinancing a mortgage.

Mortgage applications to purchase a home also fell 12% for the week ended May 13 compared to a week earlier, according to the Mortgage Bankers Association (MBA). It was the first time in three weeks that applications dropped.

For those who were considering buying a home, 27% of respondents say they will wait longer to purchase a home because of the higher interest rates and 26% said they are choosing to rent instead.

Housing experts say those choosing to rent because of higher rates might be short-sighted in the long run because mortgage payments are often more stable than the cost of being a tenant. Rental payments have also skyrocketed by 26.5% for a one-bedroom and 25.7% for a two-bedroom in April compared to a year ago, according to Rent.com.

“The safest long term investment in America is real estate” ownership, says Paul Benson, a real estate agent with Engel & Völkers in Park City, Utah. “It’s still going to continue to appreciate. People need to think about getting in before they’re left out.”

It’s important to keep in mind that while rates are higher than a few months ago, they’re still at  historical lows, Benson says. Today’s 5% rates pale in comparison to the 18% rates in the early 1980s and still below the 7.8% average in the five decades of Freddie Mac data.

Some Home Shoppers Not Thwarted By Higher Rates

Despite rates at a decade high, 72% of survey respondents say they’d accept the interest rate in order to own a home in the current real estate market, and considering their own credit score. Within that group, 17% say they will make monthly cutbacks to afford the interest rate.

Most respondents (36%) say while the interest rate is a key factor when deciding on a mortgage, it’s not the most important cost to them. Twenty-one percent said they were more concerned about closing costs than the interest rate.

The cost of housing overall has jumped substantially in the past with closing costs nationwide up 13.4% in 2021 compared to the previous year, according to CoreLogic, a real estate data provider. The average closing cost on a mortgage to purchase a single-family property was $6,905 after transfer taxes in 2021.

 

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