Rising interest rates could have a significant effect on US property market

Over half of people considering buying a home in the United States consider rising interest rates to be among the top factors affecting their ability to do so, new research has found.

Some 53% are worried about the fact that mortgage rates have increased since the Presidential election and believe that there will be more rises in the coming year, according to the research from real estate firm Zillow.

Zillow is warning that rising rates may have an impact on home buying activity and affordability for the first time in years.

The top concern is being able to find a home to buy with 65% saying they are most concerned about finding an affordable property while 53% are concerned about rising interest rates.

When this same survey was conduct in 2015 rising mortgage rates were concerning for 50%, well below the 73% worried about affordability and the 59% citing being able to save for a deposit.

However, despite rising concerns, the report suggests that plans to purchase won’t be a major impact initially as 83% of those planning to buy within the next three years said that they will continue with their home buying plans even if rates increase their monthly mortgage payment by $100.

While 49% said that they would move forward with a home purchase even if rising rates were to increase their monthly payments by at least $200 but the report warns that as rates rise and monthly payments for homes will increase, buyers’ budgets will be more strained.

A quarter of home buyers claim they would reconsider the type of home they are searching for, such as looking for a smaller home or less expensive community, should their monthly payment increase by up to $100. If monthly payments were to increase up to $200, another 38% would change the budget of the home they are searching for.

‘For years, falling interest rates have been a boon to the US housing market, keeping monthly mortgage payments low for first time and move-up buyers alike, even as home values rose,’ said Erin Lantz, vice president of mortgages for Zillow Group.

‘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,’ added Lantz.

The research shows that for a typical buyer looking for a median home valued at $195,300, an increase in mortgage rates from 4% to 4.25% would increase their monthly mortgage payment by approximately $23.

Across the US only four of the largest 35 metros would see monthly mortgage payments rise by more than $100 should the rate hit 4.5%. If rates rise to 5% some 19 of the largest 35 metros would see monthly payments on the median home rise by $100 or more.

The buyers that will be hit the hardest by a rate increase will be those living in metros where housing is expensive. In markets like San Francisco or San Jose, monthly mortgage payments could increase by $400 or more if mortgage rates rise to 5%.

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