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Mortgage Rate Increases: How They’re Impacting Housing Demand

Mortgage rates increased to 3.22%, the highest percentage since May 2020—likely sparking motivation for buyers and continuing to drive up the housing-market competition.

Some 47% of house hunters say they’d feel more urgency to buy a home if mortgage rates rose above 3.5%, according to a new report from Redfin.  A lower share of 29% would look for homes in different areas or consider smaller houses, while 14% would slow their search in hopes of rates coming down again.

Meanwhile, 7% of respondents wouldn’t change their plans at all. Just 2% said they would cancel their plans to purchase a home if mortgage rates increased to 3.5%.

The Redfin-commissioned survey of 1,500 U.S. residents planning to buy or sell a home in the next 12 months, showed focuses on the majority of those respondents indicating they were planning to buy a home in the next year.

The interest rate on a 30-year fixed mortgage rose during the first week of 2022 from 3.11% the prior week, Freddie Mac said Thursday. That’s the highest level since May 2020, when the pandemic was just beginning. Redfin Chief Economist Daryl Fairweather expects rates to hit about 3.6% by the end of 2022.

“Mortgage rates increasing will make homebuying less affordable. Over time, that will put the brakes on demand and put an end to double-digit annual price growth,” Fairweather said. “In the short term, this increase will light a fire under homebuyers and make for an extremely competitive January.”

Rising rates are the main driver for homebuyers in Houston right now, according to local Redfin real estate agent Faith Floyd.

“Buyers are worried mortgage rates will go up and they’ll no longer be able to afford a home,” said Floyd. “They also feel a sense of urgency because they don’t want to have to compete with spring and summer buyers and end up overpaying five months down the road.”

Agents have also said the potential for higher mortgage rates is motivating sellers to act quickly.

“Sellers want to get their homes on the market ASAP,” Seattle Redfin Agent Shoshana Godwin said. “They’re concerned that if rates rise too much, it could impact their chances of getting good offers since buyers may be worried about overall costs increasing.”

To view the full report and interactive mortgage rates chart, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].

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