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Home Buyers Say Rising Interest Rates are Top Concern

Despite increased concerns over rising rates, most Americans will move forward with a home purchase should rising rates increase their monthly payment by $100

Feb 24, 2017

SEATTLE, Feb. 24, 2017 /PRNewswire/ -- The majority (53 percent) of current home shoppers consider rising interest rates to be among the top factors impacting their ability to purchase a home, according to a new survey from Zillow Group Mortgages[i]. Mortgage rates increased following the U.S. presidential election and federal funds rate hike in December. With several more federal funds rate increases expected this year, rising rates may have an impact on home buying activity and affordability for the first time in years.

Respondents who are currently in the process of searching for or buying a home claim they are most concerned about finding an affordable home amidst low inventory (65 percent), followed by concerns over rising interest rates (53 percent). When this same survey was conduct in 2015[ii], rising mortgage rates (50 percent) ranked lower among top concerns for home buyers, falling behind both finding an affordable home (73 percent) and saving for a down payment (59 percent).

Despite rising concerns, plans to purchase won't be impacted - at least initially. Most people (83 percent) planning to buy within the next three years will continue with their home buying plans even if rates increase their monthly mortgage payment by $100. Nearly half (49 percent) of home shoppers would move forward with a home purchase even if rising rates were to increase their monthly payments by at least $200.

That said, as rates rise and monthly payments for homes will increase, buyers' budgets will be more strained. A quarter of home shoppers claim they would reconsider the type of home they are searching for, such as looking for a smaller home or less expensive community, should their monthly payment increase by up to $100 (25 percent). If monthly payments were to increase up to $200, another 38 percent of home shoppers would change the budget of the home they are searching for.

"For years, falling interest rates have been a boon to the U.S. housing market, keeping monthly mortgage payments low for first-time and move-up buyers alike, even as home values rose," said Erin Lantz, vice president of mortgages for Zillow Group. "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. That said, for most borrowers, there is quite a bit of head room for rates to rise before home-buying becomes unaffordable."

For the typical homebuyer shopping for the median U.S. home, valued at $195,300[iii], an increase in mortgage rates from 4 percent to 4.25 percent would increase their monthly mortgage payment by approximately $23[iv]. Across the U.S., only 4 of the largest 35 metros would see monthly mortgage payments rise by more than $100 should rate hit 4.5 percent. If rates rise to 5.0 percent, 19 of the largest 35 metros would see monthly payments on the median home rise by $100 or more[v].

The buyers that will be hit the hardest by a rate increase will be those living in U.S. metros where housing is expensive. In markets like San Francisco or San Jose, monthly mortgage payments could increase by $400 or more if mortgage rates rise to 5.0 percent[vi].

According to the latest Zillow® Home Price Expectations Survey, which polled 100 housing market experts, the effect of housing affordability in the wake of rising mortgage rates is set to be the most significant force driving the housing market this year.

IMPACT OF INTEREST RATE INCREASE ON MONTHLY PAYMENT, BY METRO AREA

Metropolitan
Area

Zillow
Home
Value Index
(ZHVI)[vii]

Monthly
Mortgage
Payment at
4.0%[viii]

Monthly
Mortgage
Payment at
5.0%[ix]

Difference in
Monthly
Mortgage
Payment

United States

$195,300

$740

$839

$99

New York, NY

$404,800

$1,546

$1,738

$192

Los Angeles-Long Beach-Anaheim, CA

$595,700

$2,275

$2,558

$283

Chicago, IL

$206,000

$787

$885

$98

Dallas-Fort Worth, TX

$202,000

$772

$868

$96

Philadelphia, PA

$214,900

$821

$923

$102

Houston, TX

$175,900

$672

$755

$84

Washington, DC

$380,900

$1,455

$1,636

$181

Miami-Fort Lauderdale, FL

$248,100

$948

$1,065

$118

Atlanta, GA

$174,200

$665

$748

$83

Boston, MA

$413,900

$1,581

$1,778

$197

San Francisco, CA

$833,600

$3,184

$3,580

$396

Detroit, MI

$136,500

$521

$586

$65

Riverside, CA

$321,200

$1,227

$1,380

$153

Phoenix, AZ

$231,300

$883

$993

$110

Seattle, WA

$413,900

$1,581

$1,778

$197

Minneapolis-St Paul, MN

$238,000

$909

$1,022

$113

San Diego, CA

$530,900

$2,028

$2,280

$252

St. Louis, MO

$149,800

$572

$643

$71

Tampa, FL

$181,200

$692

$778

$86

Baltimore, MD

$258,400

$987

$1,110

$123

Denver, CO

$356,900

$1,363

$1,532

$170

Pittsburgh, PA

$134,300

$513

$577

$64

Portland, OR

$357,000

$1,363

$1,533

$170

Charlotte, NC

$169,000

$645

$726

$80

Sacramento, CA

$355,000

$1,356

$1,525

$169

San Antonio, TX

$157,500

$602

$676

$75

Orlando, FL

$201,400

$769

$865

$96

Cincinnati, OH

$149,800

$572

$643

$71

Cleveland, OH

$131,700

$503

$566

$63

Kansas City, MO

$153,500

$586

$659

$73

Las Vegas, NV

$216,400

$827

$929

$103

Columbus, OH

$161,100

$615

$692

$77

Indianapolis, IN

$135,600

$518

$582

$64

San Jose, CA

$970,000

$3,705

$4,166

$461

Austin, TX

$263,400

$1,006

$1,131

$125

About Zillow Group

Zillow Group (NASDAQ: Z and ZG) houses a portfolio of the largest real estate and home-related brands on the Web and mobile. The company's brands focus on all stages of the home lifecycle: renting, buying, selling, and financing. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow®, Trulia®, StreetEasy®, HotPads®, and Naked Apartments®. In addition, Zillow Group works with tens of thousands of real estate agents, lenders and rental professionals, helping maximize business opportunities and connect to millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Mortech®, dotloop® and Bridge Interactive™. The company is headquartered in Seattle.

Zillow, Mortech, StreetEasy, Retsly and HotPads are registered trademarks of Zillow, Inc. Trulia is a registered mark of Trulia, LLC. dotloop is a registered trademark of DotLoop, LLC. Naked Apartments is a registered trademark of Naked Apartments, Inc. Bridge Interactive, Contact, Cheque and Compose are trademarks of Bridge Interactive Group, LLC.

[i] These are findings from an Ipsos poll conducted January 26 – 27, 2017 on behalf of Zillow. For the survey, a sample of 1,005 U.S. adults over the age of 18 was interviewed online, in English, including 379 adults who say that they plan to purchase a home within the next three years.
[ii] '2015 Interest Rate Survey' was conducted Nov. 30, 2015 through Dec 2, 2015 by ORC International on behalf of Zillow, Inc. For the survey, a sample of 1,010 adults was interviewed online, in English.
[iii] According to the January 2017 Zillow Home Value Index.
[iv] Effect of a 25-basis point increase in mortgage rates, assuming 30-year fixed rate increases from 4% to 4.25% with a 20% down payment, on the median home value of $195,300.  
[v] Effects of a 50- basis point increase (from 4% to 4.5%) and 100-basis point increase (from 4% to 5% in mortgage rates, assuming a 20% down payment, on the median home value in those metros.
[vi] Monthly payment on median home value in San Francisco would increase by $396 and monthly payment on median home in San Jose would increase by $460, assuming 30-year fixed rate increases from 4% to 5%. Both calculations assume a 20% down payment.
[vii] The Zillow Home Value Index (ZHVI) is the median estimated home value for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. It is expressed in dollars, and seasonally adjusted.
[viii] Average 30-year fixed rate, assuming a 20% down payment on the median ZHVI within that region.
[ix] Average 30-year fixed rate, assuming a 20% down payment on the median ZHVI within that region.

 

SOURCE Zillow Group

For further information: Cat Neilson, Zillow, press@zillow.com


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