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An increase in mortgage interest rates undermines the purchasing power of home buyers

The housing epidemic is getting its first big test.

Mortgage rates have risen in each of the past three weeks amid speculation that inflation will weaken as the US economy pushes back this year. Although borrowing costs are still close to historically low levels, the rapid jump has already begun to erode purchasing power, allowing buyers to raise house prices across the country in recent months.

The rage of applications has become one of the big surprises of the epidemic. When the blockade was lifted, buyers armed with low mortgage rates found a new urgency to acquire property that had enough space for a home office և “Raising School”.

The intensification of competition for the close supply of list plots was a dramatic shift as millennia, who spent years renting in urban centers, entered the supreme era of home buying. The question now is whether the market can stay warm as tariffs fluctuate.

“The reasons people are now trying to buy homes are higher than mortgage rates,” said Daniel Hale, chief economist at Realtor.com. “I do not think the demand will go away, but it will be another obstacle when people decide how to enter the market, especially for young, first-time buyers.”

According to Freddie Mack, last week the average interest rate on a 30-year fixed mortgage rose to 3% for the first time since July. This is above the record low of 2.65%, which was reached in early January.

Even small changes in interest rates can have a big impact on buyers. In its report this week, Redfin calculated that raising mortgage rates from 2.75% to 3.25% would mean that a borrower with a monthly budget of $ 2,500 would lose $ 23,250 in purchasing power parity.

At higher rates, about 68% of homes will be available to buyers across the United States, according to an analysis by Redfin, which surveyed homes for sale from January 26 to February 25. That compares with about 70% off a low mortgage loan. rate:

Buyers in Denver և Sacramento, California, could have an even bigger impact, as the share of affordable homes on that budget would fall by 3.7 percentage points.

For now, however, it is noted that rising borrowing costs do not increase wholesale emigration from the market. “Purchases have been somewhat frozen in recent weeks, but still at pre-epidemic levels a year ago,” Freddie Mack said last week.

In Denver, Carlos Gomez and his girlfriend, Angela Davis, were initially surprised to learn that they could afford a $ 450,000 home while still on their monthly budget due to deep borrowing costs.

“Now that rates are rising, it could make them look at a lower price point where there are even fewer features,” Gomez said.

“It will push us out of the game,” Gomez said, adding that they had already lost two buyers for both houses.

Time could not be worse for Sacramento’s teacher, Tammy White. For the past year, he has been clearing his credit to qualify for a home loan. She is now worried that the higher cost of the loan will keep her out of the market because she does not want to make a commitment that will prevent her from doing business for her daughter.

“If it exceeds what I can comfortably afford to take care of a very busy 5-year-old, I will have to take it out,” White said. “I am not going to overpay for these houses, where I come with a changed loan. “I try to be smart about that.”

Even if some buyers are more restrained in what they can afford, housing prices are likely to rise rapidly, with underlying demand և tight supply. This is what Zillow economist Matt Speakman says. Buyers are likely to call everyone who looks appropriate, if there are only a few.

“Of course, it seems that the days of low interest rates are always behind us,” said Speakman. “In general, the pressure on interest rates will continue to grow as the economy continues to improve.


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