Since 2012, median home prices nationwide have risen on a year-over-year basis with each passing month, according to the National Association of Realtors. But it's not further increases that has would-be buyers troubled: It's the chances that mortgage rate will become unaffordable, a newly released survey suggests.
When it comes to what housing market dynamics prospective buyers believe could frustrate their ability to purchase a new home, 53 percent point to rising interest rates on home loans, according to a recent poll conducted by Zillow.
Mortgage rates 4 percent or higher since November
In the weeks following the presidential election, 30-year fixed-rate mortgages rose sharply, breaking the 4 percent barrier for the first time in 11 months, according to Freddie Mac. Since then, interest rates have yet to fall below this threshold and housing experts predict that they're are bound to head higher eventually.
Erin Lantz, vice president of mortgages at Zillow, noted rates have been in historically affordable territory for a while now, often decreasing from the previous week.
"For years, falling interest rates have been a boon to the U.S. housing market, keeping monthly mortgage payments low for first-time and move-up buyers alike, even as home values rose," Lantz explained. "As rates rise this year, first-time buyers and those looking to buy in expensive markets where affordability is already an issue will feel the pinch of higher rates on their budget."
Lantz went on to say that while interest rates are projected to grow further, prospective buyers still have plenty of time to take advantage of the favorable financing environment.
If – or when – mortgages rates do rise, most housing experts don't anticipate them to reach cost-prohibitive territory. In the late 1970s, mortgages were going for double-digit figures, with interest rates well over 10 percent. No one is projecting they'll go anywhere near that high. For the most part, the consensus is in the high 4s to the low 5s. As recently as 2010, 30-year FRMs were 4.8 percent, according to archived data maintained by Freddie Mac.
Nearly two-thirds cite insufficient inventory as troublesome
Lending rates aside, there are other aspects to the housing market the public can't help but be concerned over. Inventory is one of them. Indeed, nearly two-thirds of respondents in the Zillow poll pointed to the troubling reality that low supply may adversely affect list prices. Generally speaking, due to the laws of supply and demand, asking values tend to grow as availability diminishes.
Much like home price growth, inventory has maintained a steady trajectory, but decreasing rather than increasing. At the present time, around 1.6 million existing homes are available for purchase, according to NAR. Though that's a 2 percent uptick from December, it's the 20th consecutive month that supply levels have slid on a year-over-year basis. Not only that, but listings have been snatched up rather quickly, particularly in California, where it takes roughly 43 days for properties to sell, making it the hottest market in the country. This is somewhat surprising, given that the Golden State has the highest sticker prices in the U.S. In the Bay Area, for instance, a median-priced home costs in excess of $1 million, according to numbers maintained by NAR.
Housing experts believe that prices will come back down to earth once demand slows. Signs of this eventuality may finally be emerging. For instance, contract signings on residential real estate purchases fell in January, dropping nearly 3 percent on NAR's Pending Home Sales Index. That's the lowest the PHSI has been at in the previous 11 months.
"The significant shortage of listings last month, along with deteriorating affordability as the result of higher home prices and mortgage rates, kept many would-be buyers at bay [in January]," said Lawrence Yun, NAR chief economist.