According to a quarterly survey of independent title agents and other real estate professionals by First American Financial Corporation, a Santa Ana, California–based provider of title insurance, settlement services and risk solutions for real estate transactions, rising interest rates are not causing home buyers to pause. In fact, even an interest-rate level of 5.5 percent won’t stop home buyers from withdrawing from the market, survey respondents said.
“Given the strong likelihood of rising mortgage rates in 2018, many savvy real estate market observers are curious how rising rates may impact demand, especially among Millennial first-time home buyers,” says Mark Fleming, chief economist at First American. “As part of our quarterly RESI, we recently surveyed title insurance agents and real estate professionals across the nation for their perspective on how sensitive they thought first-time homebuyers were to rising mortgage rates and at what rate they would withdraw from the market.
Fleming says according to survey, nearly 87 percent of first-time home buyers were in the prime home-buying age of 26 to 35, which corresponds with the Millennial generation. “On a national level, the title agents and real estate professionals surveyed believe that mortgage rates would need to hit 5.6 percent, 1.0 percentage point above the current rate, before first-time home buyers withdraw from the market. We asked the same question in the first quarter of 2017, and title agents and real estate professionals cited 5.4 percent as the mortgage rate at which first-time home buyers would withdraw from the market.
The increase in the perceived mortgage-rate tipping point for first-time home buyer demand indicates that survey respondents may see more runway in the current housing market, Fleming adds. “This may indicate they realize that the housing market is more resilient to mortgage rate increases than they thought a year ago.”
Fleming also says that even though the Fed is widely expected to raise the Federal Funds rate multiple times this year, most forecasts suggest mortgage rates will just reach 5 percent. “Based on our second quarter RESI results, purchase market demand should not be materially impacted by any modest increase in mortgage rates.”