Culture Shock for US Homebuyers When Interest Rates hit 4%?

After seeing mortgage interest hovering at around 3.25% for almost five years, homebuyers are finally faced with the reality of mortgage interest rates edging above the 4% benchmark. After the Federal Reserve decided to increase interest rates by .25% earlier this month, the mortgage industry is already anticipating the potential effects of operating in an environment of rising rates.

In recent weeks, mortgage rates across the board have increased by 75 basis points. Some of this movement is attributed to the prospects of the Fed deciding to increase rates yet again at some point during the first quarter of 2017.

The real estate market wouldn’t seem to be in jeopardy of a slowdown with rates at these current levels. In fact, rates would have to go significantly higher before analysts would become concerned about a slowdown in buying. According to Trulia chief economist Ralph McLaughlin, rates would have to move somewhere in the vicinity of 7%-10% before the real estate industry’s reaction would become material.

That doesn’t mean that escalating rates in the 5%-6% range wouldn’t have some type of effect on home sales. For all of the folks who bought their homes or refinanced with rates in the low 3% range, the likelihood they would look to make a move into something with a higher interest rate seems unlikely. For those who might decide to make a purchase, they might be tempted to hold onto their current property as a rental, given the low carrying costs.

With President-elect Donald Trump set to take office towards the end of January 2017, the Feds are likely to take a conservative approach until they can get a good sense of where the country’s economy may be headed. For now, it would seem that a small increase in rates is on the horizon, but anything after that would have to be considered conjecture at best.