Survey Reports Just 6% of Homebuyers Would Cancel Plans to Buy if Mortgage Rates Surpassed 5%

With mortgage interest rates expected to hit 5 percent next year–the Mortgage Bankers Association says the 30-year fixed rate will reach 4.8 percent by December-Redfin, Seattle, attempted to gauge how these rising rates might affect home buyers.

The Redfin survey, conducted in December of more than 4,200 prospective home buyers, said just 6 percent of prospective homebuyers would halt their home search if mortgage rates rose above 5 percent. This represented a 1 percent increase from a similar survey conducted last May.

Twenty-seven percent of respondents who plan to buy a home in the coming year said that a 5 percent mortgage rate would cause them to slow their plans to buy, down two points from May. A quarter said such a hike would have no impact on their plans, consistent with the May survey findings. Among prospective buyers responding to the late-2017 survey, 21 percent said a rate bump to 5 percent would cause them to increase their urgency to buy, while another 21 percent said they would instead look in more affordable areas or buy a smaller home.

Redfin Chief Economist Nela Richardson said the results show buyers remain “unfazed” by the prospect of rising mortgage rates.

“Tight credit, lack of inventory and high demand are the major factors that tell us there’s no housing bubble, despite rapid price increases,” Richardson said. “There are still many more buyers than the current housing supply can support, with no major relief in sight. Strict lending regulations make it much harder to buy a house you can’t afford than during the housing boom a decade ago. Finally, still-low interest rates somewhat offset high prices for some buyers.”

Still, the survey noted the tax reform debate might have fueled anxiety, as high taxes were the most common economic concern, cited by 38% of respondents. Respondents in California, where residents pay among the highest state, local and property taxes in the country, were even more likely to name high taxes as a top concern, with more than 40 percent of respondents in San Francisco, San Diego and Sacramento citing it. However, less than one-third of Los Angeles-based respondents cited high taxes as a top concern, though it was still the most common response.

By contrast, affordable housing was the most frequently cited economic concern among respondents in other parts of the country including Seattle (45%) and Portland (44%), where the income gap between the rich and poor ranked second and high taxes ranked third. Affordable housing also ranked highest among Denver-based respondents (46%), with high taxes following behind (30%).

The survey said 77% of respondents said they expect home prices in their area to rise in the next year. Only 6 percent of respondents said they expect any decline in prices, and only 1 percent said they expect prices to fall significantly. Most respondents (52%) said they expect prices to rise slightly, while another 25 percent said they expect a significant increase in prices and 17 percent said they expect no change at all.

The report is available at https://www.redfin.com/blog/2018/02/if-mortgage-rates-surpassed-5.html.