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Rising mortgage rates may mean fewer home sales during the spring

Posted on March 22nd, 2018

The spring housing market is just around the corner and the supply of Massachusetts real estate is at record lows. Mortgage rates are rising, and this may make for a very difficult situation. The busiest part of the season is President’s Day. Many builders are hoping for good news, but this remains to be seen.

Right now, there are 10% fewer homes that are for sale when you compare this to just one year ago. So, buying a home in Boston is more difficult. the prices of homes are appreciating quickly, yet there 40% for homes that are available for sale says Zillow. The lack of supply from last year caused housing prices to accelerate and this trend just continues. The price of homes is increasing faster than the rate of income that the buyer has to put down on a home. The economy is improving, and employment is also improving, but housing keeps going up.

CNBC noted that mortgage rates are also rising. A large sell-off in the bond market has caused this change in the mortgage rate. This rate together with rising prices could mean it that there are fewer buyers for homes. Mortgage News Daily indicates that lenders could raise their rates as high as 4.5% on the 30-year fixed-rate mortgages. This would be the highest mortgage rate since 2014. during that year, the rate started out at 4%. this was due to strong earnings in Corporate America. The tightening of monetary policies around the world and a growing US economy also caused the rate to rise.

The mortgage interest rate which is at 4.5% is low when you look at it historically. The main problem with this is that buyers are used to low rates and may not want to borrow at that rate to purchase their home. First time home buyers may not want to put down a down payment at that price. Many individuals simply don’t have that amount of money saved to put a down payment on their home, so they may not want to buy.

All of these issues could lead to a slow down during the Spring selling season. The growth rate in a housing prices is close to 7% according to CNBC. To make matters worse, the debt of U.S. households is at thirteen trillion dollars. Mortgage Debt is increased to 8.7 trillion dollars and student debt is at 1.36 trillion dollars. Auto debt is at 1.2 trillion dollars, so this means that people are struggling to pay their debt which could lead to a decline in housing sales and problems for the entire real estate market.

The market will become a more competitive because of those rising mortgage rates. There will be more demand for housing, but a decreased supply. Many sellers will not want to sell their homes in this market. Buyers will want to move in quickly before the rates rise even more because they don’t want to be priced out of the market. housing is being built, but it’s not meeting the growing demand for housing.

Builders are also having a problem that because of rising labor cost, land cost, and the cost of lumber. Young families and Millennials may be able to find a few affordable homes this year, but they’ll probably be in the further out suburbs which will lead to a longer commute to work.

New homes that are being built are usually more expensive than the homes that already exist. these homes are less attractive because of the higher mortgage rates. Buying a home in Boston is going to become less attractive because it will be more difficult to qualify for a mortgage, and there’s less choice in homes in the entire area.