Will Rising Mortgage Rates Repress Home Value Growth in 2017?

• February 10th 2017

by Nena Perry-Brown

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In the years following the nationwide recession, interest rates fell to their lowest level on record, helping to support the recovery of the housing market.

Now, experts expect rates to rise back to 4.75-5 percent by the end of the year, having a larger impact on mortgage affordability and home value growth than any other factor in 2017.

When responding to the latest Zillow Home Price Expectations Survey, 56 percent of panelists surveyed cited “rising mortgage interest rates, and their impact on mortgage affordability” as the most significant market force that will effect the housing market this year.

“Lately, rates have begun rising again, largely in response to the Federal Reserve’s decision to raise the federal funds rate – which influences the mortgage rates offered by home lenders – for just the second time in a decade, with promises of similar hikes to come throughout 2017,” the report notes.

While rates are increasing, they remain quite low by historical standards. Mortgage interest rates averaged closer to 8 percent between 1980-2000. As mortgages become less affordable, however, homeowners will be less likely to trade up to a larger or more valuable home, further exacerbating an already supply-constrained market.

“Rather than moving up, in a higher interest rate environment, many buyers may find that a home similar to the one they’re already living in – let alone larger or more expensive – would actually be less affordable than the one they currently own,” the report finds.

Meanwhile, median home values nationwide are expected to grow by 4.4 percent (year-over-year) in 2017, or by roughly 17.3 percent through 2021. “On average, experts said rates on a 30-year, fixed mortgage will need to reach 5.65 percent before significantly impacting home value growth, though a sizable share said rates of 5 percent or lower will have an impact,” the report states.

The median nationwide price of a house peaked almost exactly a decade ago at $196,600 on the cusp of the Great Recession; this price point is expected to be surpassed by this April.

This article originally published at https://dc.urbanturf.com/articles/blog/rising_mortgage_rates_expected_to_repress_home_value_growth/12191.