Millennials and Mortgage Rates: The Homebuyer Market in 2017

Mortgage rates are on the rise after a year that saw historic lows. That means they’re on the hearts and minds of many potential homebuyers and even current homeowners.

Is it smart to buy now? Should we sell now or wait a few years?"

Consumers are asking whether they should buy or sell now. But Realtor.com Chief Economist Jonathan Smoke said rates won’t have a major impact on the market until later in 2017, when they’re projected to reach up to 5 percent.

“Though there will be buyers who are negatively impacted by higher rates, historically that first year of higher rates is where we see growth in home sales,” Smoke said. “It’s more of a psychological factor. People who put off buying or selling want to beat the rates before they go even higher.”

In 2016, rates fell during the late spring and summer because of Brexit and other global events, and peak buying activity coincided with extremely low rates. All of this added up to an abnormal year.

“It clearly looks like we have ended the chapter of historically low interest rates,” Smoke said. “Last year was sort of a bonus year. Not only did rates decline during the year, but they didn’t reach the fours until December.”

But that chapter is closed.

In the two weeks following the presidential election, rates for a 30-year mortgage climbed 40 basis points. Rates continued to soar for nine consecutive weeks (HousingWire).

“It’s not just a matter of higher costs,” Smoke said. “The very real reality is that as rates continue to climb, more and more people will not be able to qualify.”

There are ways consumers can mitigate higher interest rates:

  • Consider tradeoffs.
  • Put more money down.
  • Opt for other types of mortgages with lower rates.
  • Settle for a less expensive home.
  • Move away from the 30-year fixed rate mortgage in favor of a hybrid mortgage.

Effects on New and Existing Homes 

Higher interest rates may be on the horizon, but Smoke said this is a particularly great sign for the remodeling industry. 

“Existing homeowners decide to stay put, because they believe it will be hard to improve their circumstance from a financial perspective. And that translates to more home improvement projects. 

“It also has an impact on the existing home market,” Smoke said. “When people are less likely to sell their home, there are still people who are moving into those areas who are looking for a home. It paves the way for the new home market to provide inventory for those folks who need it." 

The new home market should continue to grow, as should the remodeling and home improvement market.

“It’s performing as expected thus far,” he said. “We have at least one more year of growth in existing and new home sales ahead of us.”

The Millennial Effect

Millennials represent a giant chunk of potential homeowners who stand to be affected by current market trends. At 84 million strong, they’re the largest generation in history.

Millennials have been slower to get into homeownership. They came of age right in the teeth of the recession, and many extended their schooling or moved back home. 

But today they’re primed to become major players in the housing market. Delaying homeownership has resulted in several years of pent-up demand. And Smoke said that this year, at least 2 million people between 25-34 are likely to purchase a home. Despite volatile rates in January 2017, Smoke remains optimistic about the housing industry as well as the millennial generation’s potential impact.

“We’ve had housing booms, housing busts and changing housing rates, but no matter what’s happening, 25- to 34-year-olds are always dominant,” Smoke said.

Want to reach these up-and-coming homeowners? Millennials tend to do exhaustive research, particularly online, before they buy. Are you investing in your online presence? Are you showcasing your products or services online in the places millennials trust for inspiration and product reviews? From media targeting to search marketing, make sure you have smart strategies in place to put your story front and center. If you need a marketing partner to help you navigate today's market, send us a note.

You might also be interested in:

The Truth About Millennials and Homeownership

Status Check: Housing and Remodeling Today

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