Rising Mortgage Rates Put Home Buyers in the Spotlight

spotlight on home buyersInterest rates on a 30-year mortgage are up to 4.8% from 3.6% at the end of April and up from 4.7% last week.

You get the trend. Peel the onion and we see that there is a 20% drop in re-fis and a 3% drop in home purchases. As rates rise, affordability slips away from home owners. If the weight of the mortgage wasn’t bad enough, these brave buyers now have to set their sights on a lesser home than the one that they had dreamt of. Here’s another fact – according to the National Association of Realtors, roughly 1/3rd of the home purchases in July were made in cash. Read that to mean mainly investor purchases. Trulia states that at a 5.5% mortgage rate, major metros in New York and California will make renting look more attractive.

A Lack of Homebuyers

These numbers indicate that home buyers aren’t flocking to buy new homes in droves. We may be reaching a new normal in housing. One where investors will make up a healthy chunk of home purchases and many more families will rent houses from these investors. All stakeholders win here. For the investor it provides a stable rental income and a great diversification from the market with an asset that is tangible. For the renters it is an option play. They can enjoy the benefits of living in a house but can wait to make that final commitment that comes with all the financial and emotional weight. Sort of like living together before buying that ring. For sellers of homes, this provides another prospective buying group beyond just homeowners. In the end, this will help housing and neighborhoods. And ergo, it will help the economy.

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