Mortgage Rate Increase: 5%

Mortgage rates are at the highest they’ve been in the past four years – and they are projected to increase further. While the first month of 2018 showed a seemingly positive housing trend, the rest of the year may be looking bleaker than we had anticipated.

2011 was the last time we saw mortgage rates reach 5% and the predictions of increase make the future of this year’s housing market seem even more ominous. This increase would undeniably hurt the housing market and would cause a good portion (approximately a quarter) of prospective homebuyers to slow their buying plans.

Timing is everything, and this timing is less than desirable. Competition is strong, home prices are high, and supply is low. All of this, in conjunction with the increased mortgage rates, accounts for a painful housing affordability.

30-year fixed rates have also increased to 4.5%, which is significantly higher than the typical 3% that buyers have been seeing for the past six years. Because of this increase, buyers also aren’t looking into making any long-time commitments on homes anytime soon.

This hinders the ability for buyers to request loans as well, since clients on the margins may not be able to meet strict loan regulations. As a result, buyers may not be able to qualify for the size of the loan that they wish to receive, and therefore may end their housing search altogether. A select few may decide to close a deal before rates increase even further, but it the possibility of clients opting for smaller homes, or simply waiting longer to buy, is much more probable.

The only advice that can be given to real estate professionals is to try and close deals before mortgage rates increase even further. It is extremely likely that we will see an increase past 5% throughout the 2018 fiscal year, and the higher the rates increase, the less likely it is that buyers will want to commit to a contract.