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A sharp increase in interest rates is driving first-time homebuyers back into the market, increasing first-timer share of the home buying market according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

First-Time Buyers React to Rising Rates

A sharp increase in interest rates is driving first-time homebuyers back into the market, increasing first-timer share of the home buying market according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Rates on a 30 year fixed mortgage have increased 66 basis points in five weeks, encouraging buyers to act now before rates climb any higher.

With rates headed towards 5 percent, forecasters at both Fannie Mae and Freddie Mac expect rates will be relatively low next year. While some rise in fixed rates is expected, 30-year fixed-rate loans are likely to remain below 5 percent throughout the year, and initial rates on 5/1 hybrid ARMs will likely remain below 4 percent in 2011, Freddie’s economists predict.

The swift rise from 4.17 percent on November to 4.83 percent on December 15 for a 30-year fixed in Freddie’s weekly mortgage survey has brought first-time buyers back to their real estate agents’ offices at a rate unseen since the first-time buyer tax cut expired in April. The first-time homebuyer share of home purchases surged from 34.4 percent in October to 37.2 percent last month as long-time mortgage rates started to climb from record lows in early November, according to the survey.

“The recent surge in interest rates has made potential homebuyers nervous,” explained Thomas Popik, director of the HousingPulse survey. “If rates go up much more, then a good percentage of them will no longer qualify for the properties they want. As a result, they’re making bids on homes and quickly closing before their rate locks expire.”

Real estate agents responding to the latest survey commented on the rate-induced surge of homebuyer interest. “First-time buyers are back looking at homes,” reported an agent in Oregon. “Interest rates have helped spur recent activity,” added an agent in Colorado.

The surge in home buying did not affect sales of all properties equally. Short sales, which require many months to obtain mortgage-servicer approval, were often left out. “Homebuyer concern for locking in interest rates while rates are low caused them to bypass short sale listings,” commented an agent in Hawaii. “Most people are not prepared to wait for a short sale to settle…Buyers are concerned that interest rates are rising and don’t want to take a chance by agreeing to settle 5 or 6 months in the future,” wrote an agent in Virginia.

5 comments

  1. Every time mortgage interest rates spike there is a flurry of buyer activity from ill informed buyers. If everyone does the same thing now and then they are out of the buying market later, what happens to home prices? Therefore, what is the rush to buy now? Wait until the market falls again, which it will, and then buy at a lower price. So what if your interest rate is 0.50 higher. If the price of homes is lower the payment may still be lower.

  2. Amazing! This is just what I have been searching for! Thanks for sharing, where can I find out more?

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