Housing Demand Up as Homebuyers Stare Down Rising Mortgage Rates

Mike Sorohan msorohan@mba.org

July 03, 2018

Two reports from Redfin, Seattle, said home buyers appear undeterred by rising interest rates, driving demand for housing.

A Redfin-commissioned survey involving 1,300 people who planned to buy a home in the next year said just 5 percent said they'd call off their search if rates rose above 5 percent. Twenty-four percent of buyers said such an increase would have no impact on their search. These results are consistent with those from similar surveys Redfin commissioned in May and November 2017.

"Homebuyers are well aware that higher mortgage rates means higher monthly payments, but mortgage rates remain very low, historically, and buyers will make compromises," said Taylor Marr, senior economist with Redfin. "Most of the pressure buyers are feeling is from competition for a very limited number of homes for sale. The fact that such a small share of buyers will scrap their plans to buy a home if rates surpass 5 percent reflects their determination to be a part of the housing market."

Other survey results:

--32% would slow down their search and wait to see if they came back down again, up from 27% in November and 29% in May 2017.

--21% said a 5% mortgage rate would cause them to look in other areas or buy a smaller home, unchanged from November and up from 18% a year ago.

--19% would increase their urgency to buy before rates went up further, down from 21% in November and from 23% a year ago.

The report can be accessed at https://www.redfin.com/blog/2018/06/redfin-survey-rising-mortgage-rates.html.

In a separate report, Redfin said its Housing Demand Index increased 7.4 percent month over month to 116 in May. The rise was driven by a 6.3 percent increase in the number of homebuyers requesting tours, and a 9.7 percent increase in the number making offers on homes from April to May.

Across the 15 metros covered by the Index, demand rose for the second-straight month. The report found 6.6 percent more newly listed homes for sale in April compared to the same time last year, and 3.6 percent more new listings in May from a year ago.

The report said demand is still outstripping supply, however, as evidenced by total inventory still decreasing. The total number of homes for sale was down 3.3 percent year over year in May.

"People listing their homes for sale in higher numbers this April and May is good news for buyers, and good news for home sales," said Redfin head of analytics Pete Ziemkiewicz. "But it's still not enough to satisfy buyer demand, which means price increases will likely continue."

Redfin said despite the Demand Index's rebound from April to May, demand still appears lower than it was at this time last year. The Demand index was 7.5 percent lower in May 2018 than it was in May 2017. The same number of people were requesting home tours, but the number making offers fell 16.7 percent year over year.

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