Do mortgage rates have that much power over first-time home buyers?


Anticipated mortgage rate growth is sending the industry to the drawing board. Institutions aiming to ease affordability challenges are driving efforts toward helping house hunters enter the market.

But real estate economists and experts are claiming rising rates don’t have as severe an impact on first-time homebuyers as they do for property values, according to a Zillow survey.

Despite an expected rise in rates, 84% of respondents believe the homeownership rate will be higher in two years than it is today, and 88% agree it will be higher in five years. Contributing to that percentage are first-time purchasers, whose buying activity is projected to increase this year, according to nearly half of those surveyed.

Prices may very

A majority of real estate experts claim home prices today are somewhat or more sensitive to changing mortgage rates than in years past, with only 15% saying house values are somewhat or much less sensitive to rates.

“Historically, small movements in mortgage rates have not dramatically shifted the housing market. During previous periods of rising rates — in the mid-1990s and mid-2000s — the housing market remained strong buoyed by a strong labor market and, in the latter case, by lax lending standards,” Aaron Terrazas, Zillow’s senior economist, said in a press release.

Still, that doesn’t necessarily mean that’ll be the case this time around.

“There are strong reasons to believe that the housing market is more responsive to changes in interest rates than in the past — accelerating when rates drop and slowing when rates rise. Mortgage rates hit seven-year highs in November, but then fell back in December. If they remain low during the early months of 2019, the housing market could see a modest reacceleration,” Terrazas said.

Despite beliefs that first-time homebuyer activity will increase this year, tight housing supply has pushed up home prices and created affordability challenges for house shoppers at a time when rates are also rising.

To help ease financial burdens, companies such as residential lender Newfi Lending and builder Taylor Morrison Home Corp. are offering programs which help lower interest rates for purchasers.

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