Survey results released last week by Zillow Group Mortgages indicate that prospective homebuyers are worried by the possibility of rising interest rates over the next year. 53 percent of respondents said this is a top concern regarding their home buying decisions. Surprisingly, most respondents (83 percent) said these worries won’t deter them from purchasing a home within the next three years, as long as their monthly mortgage payment doesn’t exceed an extra $100 more than planned. 49 percent said they are willing to pay up to $200 more than planned per month before reconsidering their options.
Erin Lantz, vice president of mortgages for Zillow group said, “For years, falling interest rates have been a boon to the U.S. housing market, keeping monthly mortgage payments low for first-time and move-up buyers alike, even as home values rose. As rates rise this year, first-time buyers and those looking to buy in expensive markets where affordability is already an issue will feel the pinch of higher rates on their budget. That said, for most borrowers, there is quite a bit of head room for rates to rise before home-buying becomes unaffordable.”
Metro Areas Will Have Highest Interest Rates
Rates could rise to 5.0 percent in the next year. West coast cities top the list of places expected to be hit hardest, with San Jose, CA mortgage payments projected to increase by $461, San Francisco mortgages increasing by $396, and Los Angeles-Long Beach-Orange County going up by $283 per month.
Increased interest rates will affect mortgages on the East coast as well. Boston would see the highest hikes of up to $197, followed by New York City with up by $192, and D.C. going up by $181 monthly. Southwestern cities, such as Denver and Phoenix may experience mortgages increased by $170 and $110, respectively. Southern and Midwestern cities may see increases between $63(Cleveland) and $125(Austin) a month.
While those shopping say rising interest rates won’t stop them from becoming a homeowner, their buying decisions will still be impacted. In Zillow’s survey, 25 percent of respondents said they would reconsider the type of home they’re looking for if mortgages went up by $100 or more. Choosing a smaller house or a less expensive community would be an alternate route these buyers might go. An additional 38 percent of respondents reported that they would lower their homebuying budget should mortgages go up by $200.
It’s uncertain how much interest rates will increase this year, but if anything’s clear, it’s that people are ready to buy.
By Elizabeth Delehanty