Will more interest rate hikes this year turn millennials off to buying a home?
A sizable share of millennials recently surveyed by TransUnion decided to put off buying a home after learning of the interest rate hike in 2016, with 42 percent reporting that the raise in rate influenced their plans.
The key interest rate, which was increased one-quarter percentage point in December and again in March, indirectly leads the movement of mortgage rates. Mortgage rates, though still at historic lows, soared at the end of 2016, giving first-time homebuyers—mostly millennials—pause about their spring home search, according to a January report by realtor.com®.
“Higher rates make qualifying for a mortgage and finding affordable inventory more challenging,” says Jonathan Smoke, chief economist of realtor.com, of the report.
Homebuyers’ apprehension subsided by February, however, when the majority of those surveyed by Zillow reported planning to move ahead with purchasing, even if their monthly mortgage payments grow as a result of rising rates.
“As rates rise this year, first-time buyers and those looking to buy in expensive markets where affordability is already an issue will feel the pinch of higher rates on their budget,” says Erin Lantz, vice president of Mortgages for Zillow Group, of the survey. “For most borrowers, there is quite a bit of head room for rates to rise before home-buying becomes unaffordable.”
Demand has only picked up now that the spring home-buying and -selling season is underway—and with first-time homebuyers facing severe competition due to few affordable homes, mortgage rates, for now, may be less of a concern. In fact, 69 percent of those in the TransUnion survey are more focused on how they will pay for home improvements, and 67 percent are more focused on how they will pay for home maintenance.
The Federal Reserve has indicated two or three more hikes could occur in 2017.
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