Debate Over Higher Mortgage Rates

Analysis shows that move-up buyers are accelerating purchases, but entry-level buyers may continue to rent.

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There was a heated debate over the past few months as to whether higher mortgage rates would have a negative or a positive effect on home sales. One group expected a surge in sales, as people try to beat further price increases. The other camp argued that there would be no surge, and the only effect would be a loss of buyers due to higher monthly payments and fewer affordable homes.

Metrostudy has been tracking the effects of higher mortgage rates on home sales and traffic in new-home builder models. Our survey results show increased volatility in traffic and sales, but the trends are indeed mixed.

Our analysis reveals that the reaction in the marketplace is divided according to what type of buyer is involved. In the case of projects for move-up buyers, we have seen some people advancing their home buying decision. If they would have bought in 2014, some of them are accelerating the process and buying this year to beat further increases in mortgage rates (and in home prices, for that matter). The move-up group has more financial flexibility to time their purchase than the first-time home buyer group.

Meanwhile, the entry-level segment has not had the luxury to time a purchase, and as a result many of these people have simply left the home buying market and may continue to rent.

About the Author

Brad Hunter

Brad Hunter is Metrostudy’s chief economist and director of strategic consulting. Hunter directs Metrostudy’s consulting work nationwide and spearheads Metrostudy’s current work with the national development community as well as investment firms. Metrostudy is the nation’s premier advisor on local and regional housing market conditions. The firm’s unmatched database provides the quantitative foundation for its consulting and advisory work, and backs up Hunter’s forecasts of the housing market, which have been consistently more accurate than those of most other economists. Hunter also supervises the bulk of the company’s multi-market studies, and has orchestrated hundreds of site-specific or area-specific housing market studies over the past twenty-five years of his career. He oversees the company’s work for investment funds who are investing a combined $1 billion in residential property nationwide. With 25 years’ experience in real estate analysis and local market economics, Hunter is a full member of the Urban Land Institute, has authored numerous articles and chapters in ULI-published books, including Market Profiles, chairs various committees, and is an active member of the national Community Development Council. He is regularly cited in local and national journals including recent interviews by the Wall Street Journal, Business Week, and on CNBC and Bloomberg News. His analysis is also featured in the book Foreclosure Nation. Hunter graduated in 1985 from the Wharton School of the University of Pennsylvania with a degree in economics and has been a guest lecturer at Harvard University. Hunter is a speaker at conferences on real estate opportunities and investing, as well as at real estate think tanks, and is frequently called upon by key regulatory agencies of the U.S. government for his insights on the housing sector.

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