Why Rising Mortgage Rates Are Not A Threat
Mortgage rates are currently on the rise, but, according to First American’s Potential Home Sales Model, the rise in rates will not noticeably reduce home sales. Even if the rates went to 5 percent, which is expected to occur in the next year, home sales would barley be affected.
First American’s sales model shows that, if fixed rate 30 year mortgage rates went up to 5 percent (currently hovering around 4.5), home sales would only slightly decrease from 6.11 million to 6.1 million.
According to First American’s economist Mark Fleming, the reason why rising mortgage rates won’t significantly affect home sales is because household income, partially due to the healthy rise of mortgage rates, is also on the rise. Also, homebuyers can easily adjust to higher fixed rate mortgages by taking an adjustable rate mortgage instead.
The housing market is greatly flexible and can adjust well to small rises in mortgage rates. Flemings believes that the rising mortgage rates should not be a worry for buyers; instead, they should worry about finding the right home in today’s low-inventory time period.