A picture of five wooden house miniatures next to a wooden, jagged-shaped red arrow mimicking rate increases on a graph.

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How Will Higher Mortgage Rates Impact Home Buying?

November 4, 2021

Mortgage rates are expected to continue to rise after the Federal Reserve’s announcement Wednesday that it would taper its purchases of bonds and mortgage-backed securities. Will those anticipated higher rates price out more home buyers? While some would-be buyers may back off, analysts say, that would allow more persistent buyers to push through.

Higher mortgage rates—pushing above 3% for the 30-year fixed-rate mortgage—could help lessen the competition. “That could make home buying less expensive if buyers aren’t spending as much on their homes and engaging in crazy bidding wars—possibly a welcome lifeline for many first-time buyers who’ve been barred from homeownership by record-high prices,” realtor.com® reports.

The median price for an existing-home has posted double-digit annual gains. In September, the existing-home sale price rose to a median of $352,800, up 13.3% compared to a year earlier, the National Association of REALTORS® reports.

NAR has predicted the 30-year fixed-rate mortgage will likely average 3.6% by mid-2022.

“It’s going to be less affordable a year from now than where we are today,” Leonard Kiefer, deputy chief economist at Freddie Mac, told realtor.com®.

During the first week of January, the 30-year fixed-rate mortgage bottomed out at a 2.65% average. The 30-year fixed-rate mortgage averaged 3.14% for the week ending Oct. 28, Freddie Mac reports.

Realtor.com® offers the following example: A $380,000 home with a 2.65% mortgage rate would have a payment of about $1,225 a month on a 30-year loan, assuming a 20% down payment. At a 3.14% rate, the payment will rise by about $80 a month. Over the 30-year loan, owners could pay nearly $29,000 more.

However, mortgage rates averaging 3% are still historically low. Also, higher mortgage rates may cause some of the competition in the housing market to cool. “Prospective home buyers should actually be praying for rates to start creeping up,” Katie Gatti, a personal finance consultant and the founder of Money with Katie blog, told realtor.com®. Price increases would then likely moderate as well.