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Will Rising Rates Really Impact the Housing Market?

Rising mortgage rates could have minimal impact on the housing market according to a study by real estate consulting firm John Burns. The study, that surveyed over 300 homebuilders found that 85 percent home builders said home sales would decline less than 10 percent if mortgage interest rates were to rise to 5 percent.

For the study, John Burns asked builders how would their home sales get affected if rates increased by 1 percent and held steady for the remainder of the year if all other factors such as the economy remain unchanged.

While 29 percent said that sales would not fall at all, 56 percent of the respondents said that rising rates would lower sales by 1 to 10 percent. Only 2 percent of the respondents said that rising rates would result in 21 to 30 percent lower sales.

“Mortgage rates have risen 1 percent or more ten times in the last 43 years, with little impact on home sales and prices when the economy was also strong,” a whitepaper by John Burns had found. “Historically, rising confidence, solid job growth, and higher wages have more than offset reduced demand for housing resulting from higher mortgage rates. When rates rise during a weak economy, home sales and prices get crushed.”

However, the sentiment among homebuyers and owners is very different. Recent growth in home prices, coupled with low inventory and rising rates have made home affordability a key issue for buyers and homeowners alike.

According to a survey by ValueInsured, confidence among first-time homebuyers in their ability to save enough for a down payment was down with only 35 percent saying they could afford a down payment, representing a 9 point drop in 12 months. In the country’s hottest housing markets, only 25 percent of interested homebuyers were somewhat confident of being able to afford a down payment in the next 12 months.

As far as homeowners were concerned, the survey found that 59 percent homeowners believed that people who were buying in their area were overpaying, while 30 percent homeowners considered the housing market as “unhealthy.”

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