And the Winner is… The Number 1 Influence on 2017’s Real Estate Market

The facts of financing are undeniably influential but the nuances are really what shape the Real Estate Market. Mortgage interest rates rise and fall regularly, and though we’ve had several interest rate drops in recent weeks, all the news is about rising rates… why is that?

Several of my current clients were unaware that rates had actually dropped. One rushed to lock in the lower rate, another is playing the waiting game, and a third had locked his rate previously. In the end, who knows which one will benefit most from their choice? If anyone tells you they can predict the direction the wind will blow next they’re misleading you.

Zillow (not a bastion of reliability in my opinion but persuasive nonetheless) anticipates that rising rates will have the most impact on our real estate market this year. I will admit that clients seem concerned, however, and this is a BIG however, the FED raising interest rates does not necessarily translate into higher mortgage rates, and the difference between today’s rates and mortgage rates from this time one year ago is negligible.

Folks, I don’t mean to yell at you, but I don’t mind raising my voice a little cause you need to hear this, MORTGAGE INTEREST RATES ARE STILL LOW!!

In Zillow’s Home Price Expectations Survey, followed by limited housing supply and shifting demographics, rising interest rates are expected to be the Number 1 influence on the 2017 Real Estate market.

I have to wonder if it’s an actual rate bump or the anticipation of a bump that is the true driver of this vehicle.

Rising rates, markedly, affect both sides of the transaction—as rates increase, homebuyers are further extended, while sellers hold off on listing to avoid a higher-priced mortgage. The experts surveyed expect the most significant changes to come when rates reach 5.5 percent. According to Freddie Mac, rates currently are in the neighborhood of 4 percent.

“Rising mortgage rates, inventory shortages and demographic shifts will be the main drivers of the U.S. housing economy this year, especially for first-time buyers who will face tougher competition for entry-level homes and often operate with a tighter budget than move-up buyers,” says Zillow Chief Economist Dr. Svenja Gudell. “When you combine higher mortgage rates with increasing home values, mortgage affordability starts to suffer, and buyers will have to spend more and more on their monthly payments. This makes it even more important for buyers to prepare their finances, and shop around to make sure they are getting the best possible rate.”

Seventy-seven percent of homebuyers obtain a mortgage to finance a home purchase, according to Zillow—this widespread use, experts agree, will amplify the effects of rising rates on home price appreciation.

“Compared to their outlook in our previous survey just a few months ago, most of our panelists now expect somewhat stronger home value appreciation this year and next, as tight inventory conditions persist,” says Terry Loebs, founder of Pulsenomics, which partnered with Zillow on the survey. “However, longer-term, the consensus still calls for decelerating prices, with the most pessimistic quartile of experts continuing to project negative inflation-adjusted returns for U.S. housing beyond 2017. The specter of rising mortgage rates and other affordability hurdles are clearly impacting these home value projections.”