How Will Rising Mortgage Rates Affect Homebuying?

Mortgage rates dipped slightly this week due to investor activity, but that may be the last of it. Freddie Mac reported the 20-year fixed-rate mortgage averaged 2.73% for the week ending Jan. 28, which is a four point drop from the previous week. Realtor.com’s senior economist says investors remain concerned about the economy, but mortgage rates are expected to increase this year. This may result in homebuyers being priced out and a dampening of housing market activity. But if the economy does improve this year, that may be enough to support the current pace of home sales.

“As we look at 2021, we expect rising mortgage rates to dampen the pace of activity in the next couple of months, as many buyers will be priced out,” Ratiu said. He noted that as the youngest millennials are entering their 30s and the economy is expected to improve from the coronavirus pandemic, both factors that should keep the pace of home sales elevated in the spring and summer.

Others argue that rising interest rates won’t necessarily hurt home sales or prices. “Historically, when mortgage rates rise, existing-home sales don’t necessarily fall,” Mark Fleming, chief economist at title insurer First American, wrote in a recent report.

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