Are homebuyers now undaunted by high mortgage rates?

Many have grown accustomed to the new landscape, says top originator

Are homebuyers now undaunted by high mortgage rates?

Mortgage rates may be climbing, but there’s still a sizable cohort of borrowers who are pushing ahead with their homebuying plans despite that trend.

That’s according to Hanh Dao (pictured), a Texas-based loan originator with Lock It Lending, who told Mortgage Professional America that the company had witnessed a significant jump in leads and loans generated in recent weeks, even as high rates show little sign of falling.

“I know that the rate is really high for the last two or three weeks since the inflation report [showing an unexpected uptick in March], but I don’t see it deterring people from buying,” she said, “because I feel like they kind of got used to the fact that the rate is high.”

When rates began to rise in 2022 and 2023 as the Federal Reserve bid to tackle an unexpected spike in inflation, the market took something of a dip as consumers adjusted to the “learning curve” of higher borrowing costs.

Borrowers became increasingly rate-sensitive in that environment, Dao said, shopping around as the COVID-era days of record-low interest rates faded into the rearview mirror.

Now, some of the alarm associated with higher rates appears to have diminished. “Surprisingly enough, the last two weeks, rates spiked a lot too – but I don’t have a lot of people stopping shopping or looking for different options,” Dao said.

“I feel like it’s the market – everybody is expecting prices up, and then you also hear from the media that inflation is so high; it’s [now] less of a shock to the consumers.”

Borrowers comforted by prospect of lower rates

For Dao, counseling clients about the current market and its prospects looking forward have been top priorities in 2024, especially with the landscape having shifted so noticeably in recent times.

Yes, rates have risen plenty since the lows of the pandemic – but delving into what the monthly payment will look like often sets borrowers’ minds at ease, she said, especially with the expectation that borrowing costs will eventually come down at some point in the future.

“When you break down the monthly payment to them, it can be a lot,” she said, “but in Texas, typically my average loan amount is $280,000 or $300,000, so the difference is big – but it’s still not that big.

“And then you break it down: ‘The election is coming up, and most of the time the rate will drop before the election.’ So we’re thinking July, August. I would break it down to them that they pay this really high rate for maybe only six months and then after that, we can get you a lower rate.”

Could borrowers be losing out by timing the market?

Buyers who decide to wait out the market and only get involved when rates imminently dip lower could be taking a big risk, she suggested.

As a seasoned real estate investor herself, it’s an adage Dao is only too happy to share with her clients.

“To me, a good investment is a good investment, regardless of the rate,” she said. “The rate can fluctuate, the market can fluctuate, but if you have a good piece of investment in a good location, there’s always value to it. You will never lose.

“So that’s how I break it down to my investors and my primary homebuyers. And so I have no problem with the higher rate.”

There’s also the fact that borrowers holding out hope six months ago for a dip in the market haven’t seen it arrive yet – meaning they may have lost out on valuable time by waiting.

Amid elevated interest in purchasing a home in Texas, bidding wars are still something of a staple in the market – although the good news is that they’re nowhere near as intense as those that emerged during the pandemic-era homebuying boom.

“There are bidding wars right now, but not as bad as during COVID,” Dao said. “[Then] I saw people waiving everything – their financing contingency, options, appraisal, everything. But now, they don’t do that. They’re competing based on price.”

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