Will Rates Heading Above 4% Dampen Buyer Interest in DC?

• June 22nd 2015

by Tianna Mañón

Long-term mortgage rates ticked above 4 percent last week for the first time since November, and stayed at 4 percent this week. While rates still remain at historic lows, relatively speaking, the home buying public has become quite comfortable with the lower rates. This led UrbanTurf to wonder if the higher mortgage rate would dampen buyer interest in the DC region, so we reached out to local real estate professionals for their input.

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Buyers will want to lock in while rates are low and mortgages are easier to get.

Jennifer Landgraff, Sales Manager at Caliber Home Loans

“I think buyer demand will remain strong in 2015 regardless of the volatility in the interest rate markets. Rental prices remain very high in the city, which is helping to drive buyer demand. Buyers are also anxious to purchase and to lock in low interest rates even if those rates are above 4 percent. In the past year, lenders have eased many of the stringent requirements to get mortgages and now there are more options available for buyers with little or no down payment. The Federal Housing Administration (FHA) has also reduced their mortgage insurance requirements, which makes this type of financing more attractive to buyers.”

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Rates fluctuate often, but buyer demand won’t change much as a result

Ryan Dailey, Senior Mortgage Consultant at Prosperity Home Mortgage

“Honestly, rates haven’t budged much. They’re probably up a quarter of a point over the last six weeks or so and a quarter isn’t really that big of a deal. In our world, we definitely have rate fluctuations, and I don’t have any buyers who dropped out of the market or changed their price point over it. Rates change every day. Do buyers wish they’d go down? Yes, but it’s not really driving people to leave the market. There’s a psychological aspect of it so a realtor may have a different experience with a buyer or seller who wants to hold off or drop out completely, but we’re not seeing changes in the market on our side.”

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Rates would have to go significantly higher to slow down the market

John Downs, Sales Manager at Caliber Home Loans

“Use 2013 as a guide. Mortgage rates went from 3.25 percent to 4.75 percent between April and July, and the purchase market exploded with monthly contracts increasing dramatically for both condos and single family homes year over year. The reality is the DC area has very high rents and very high average incomes per person/household. In many cases, with today’s rent costs, a mortgage payment can be less dollar for dollar without even accounting for the tax savings, monthly principal payment and expected appreciation. That said, rates would have to go significantly higher to slow down this housing market. Another good metric is to compare how many area residents can afford a 5 percent down payment for the median home price. Today, we sit at over 70 percent. As a reflection point, we were at 40 percent in 2007 just before the market turned. To summarize, high rent prices will be the buffer for mortgage rates moving higher at a time when lending is allowing buyers to put less money down and at a time where over 70 percent of DC residents can afford the down payment.”

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First-time buyers more likely to be affected, but barely

Tony Hain, Associate Broker at the art of city living

“Interest rate increases typically affect the first-time buyer market more than move up buyers. We often see a spike in buyer interest as rates begin to rise — they want to get in before the rates rise more. However, that may not happen this time because we don’t have a shortage of hesitant buyers right now. With all the multiple offers—many have been actively making offers to buy.”

This article originally published at https://dc.urbanturf.com/articles/blog/will_higher_mortgage_rates_affect_dc_market/10016.