Home prices were up almost 8 percent in November compared with the previous year, inventory has declined and mortgage rates have started to rise. Despite rising rates and falling inventory, however, Redfin agents report homebuyers still are optimistic.
In a recent survey of more than 800 Redfin real estate agents across the country, respondents were asked to describe the general attitude of today’s homebuyer in one word. More than one-in-three agents described buyers as being “hopeful,” which outranked other choices such as “fatigued,” “disappointed” and “rushed.” When asked if now is a good time to buy, 44 percent responded that it is — the highest this sentiment has been of all four agent surveys Redfin has conducted this year and just one percentage point lower than in December of last year.
Will rising rates affect buyers?
Redfin agents were asked how they thought an increase in mortgage rates from 4 percent to 5 percent during the next year would affect the housing market. Forty-nine percent said homebuyers would modify their searches and shop for less expensive homes, while 19 percent said the rate hike will have no effect at all and 16 percent expressed concern that the market will slow dramatically. Some agents thought the rate hike likely would affect supply more than demand, while another 16 percent said prospective sellers locked into low mortgage rates would decide not to sell to hold onto their inexpensive mortgage.
Redfin’s results corroborate those of a recent survey of homebuyers, which revealed that a mere 2.6 percent would end their home search if mortgage rates were to rise above 4 percent. In fact, many agents noted that any negative response to rising rates likely will be short-lived. Rates remain at historic lows, and an increase of even 1 percentage point is not going to have a dramatic effect on affordability.
Low housing supply
Despite some encouraging signs, persistently low housing supply remains a significant pain point in the market. More than half of the Redfin agents surveyed said that many prospective home sellers are continuing to live in their homes, despite expressing a desire to sell. In addition to a lack of homes from which to choose, a driving factor behind this decision is that many homeowners are locked into a sub-4-percent mortgage rate that they don’t want to relinquish. Redfin predicts that this will continue to affect inventory throughout 2017.
Another indicator of possible inventory woes to come is that 44 percent of agents reported many homeowners move anyway and choose to rent their home rather than sell it.
“For some homeowners looking to move, it can be a wise decision to take advantage of the combination of rising rents and low mortgage rates by renting their current homes,” says Redfin Chief Economist Nela Richardson. “For this reason, we have a group of move-up buyers that are not making their starter homes available to the next generation of homebuyers, which is historically how more affordable inventory is added to the market.
“Unfortunately, this hits millennials the hardest,” says Richardson. “This is a double-whammy for the inventory crunch, since not only are there fewer homes for sale, but the ones that do get listed are mostly in a higher price range.”
