HOME BUYERS WORRIED OVER RISING INTEREST RATES

By Conor Dougherty

Associated Press
Rates are rising partly because of expectations the Federal Reserve will ease up on bond buying. Rising mortgage rates are the biggest worry for prospective home buyers—bigger than rising prices and the lack of available choices, according to a survey released today by Trulia, an online real estate site.

Still, the survey suggested that rates—which remain below 5%—aren’t likely to be a deterrent to home buyers just yet.

Mortgage rates have jumped in recent weeks, creating concerns that the rebounding real-estate market could lose steam. A separate survey released Wednesday from the Mortgage Bankers Association showed that interest rates for a 30-year fixed mortgage rose to 4.68% last week—the highest rate in two years and up from 4.58% a week earlier.

While prospective homeowners may be concerned about rising rates, they shouldn’t be surprised, Trulia Chief Economist Jed Kolko notes in a blog post about mortgage rates. Economists have been expecting rates to increase because the economy is improving and market expectations that the Federal Reserve will ease up on bond buying and other extraordinary measures designed to keep interest rates low.

To find out what the effect on consumers, Trulia surveyed about 2,000 people over three days in late June, just after rates began to spike upward. Some 41% of respondents said their biggest worry was that mortgage rates would rise before they were able to buy a home. That was more than the 37% who were worried about pries rising and the 36% who worried that they wouldn’t be able to find a home they liked.

While rising mortgage rates have yet to have a noticeable effect on purchase mortgages, they have already led to a steep decline in refinancing. But, over time, rising rates should slow down recent price growth.

From Trulia:

For instance, at 3.35% the monthly payment on a $200,000, 30-year fixed-rate loan is $881; at 4.46% the payment jumps to $1,009 – that’s a 14% jump in the monthly mortgage payment between early May and late June.

The bigger question is how high is too high? The answer to that, Trulia says, is 6%. After combining the responses to several questions, Trulia found that some 56% of respondents who planned to buy a home would be discouraged if rates hit 6%. Among renters who planned to buy, about 62% would be discouraged if rates hit 6%.