House hunters are watching mortgage rates closely. After all, every increase could have an impact on affordability, particularly given escalating home prices.
Nearly half—47%—of home buyers recently surveyed say they would feel more pressure to buy a home if mortgage rates passed 3.5%, according to a new consumer survey conducted by Redfin.
Mortgage rates are largely forecast to continue to rise over the coming months. Last week, the 30-year fixed-rate mortgage rose to its highest average since May 2020, averaging 3.22%, Freddie Mac reports. The National Association of REALTORS® forecasts that mortgage rates will average 3.7% by the end of this year.
Buyers who were surveyed say that increases in mortgage rates would also have an impact on the type of home they decide to purchase. Twenty-nine percent of buyers say that if mortgage rates increase above 3.5%, they will change their target areas to buy a home and seek a smaller one.
Only 7% of the 1,500 home buyers surveyed say they wouldn’t change their plans at all if mortgage rates rise above 3.5%, the Redfin survey shows. Only 2% would cancel their plans to purchase a home altogether if rates increase past that amount.
“Mortgage rates increasing will make homebuying less affordable,” says Daryl Fairweather, Redfin’s chief economist. “Over time, that will put the brakes on demand and put an end to double-digit annual price growth. But in the short term, this increase will light a fire under home buyers and make for an extremely competitive January.”