Rates have topped 7% again. Will that convince homeowners to put off purchasing plans?

It’s been one of the biggest trends in the mortgage market over the past two years amid rising interest rates – and the so-called “lock-in effect” could be set to stretch into 2025 as rates shoot back up past 7%.
Scores of homeowners who snagged an ultra-low mortgage rate during the COVID-19 pandemic have opted to remain in their current property, with some shelving plans to move because it would mean losing that bargain rate.
That’s expected to continue weighing against the market outlook for the year ahead. While rates are projected to gradually fall throughout the year, they aren’t likely to dip below 6%, according to First American – and that could deter homeowners from leaving their property until they slide further.
Housing supply could remain scarce as a result. “Given our mortgage rate outlook for rates to stay above 6% in 2025,” First American deputy chief economist Odeta Kushi said, “still-constrained affordability and the mortgage lock-in effect will prevent inventory from making a return to pre-pandemic norms.”
While rates are now perched at a six-month high of 7.09%, that recent jump could prove a “non-event” because homebuyers have become accustomed to elevated rates in recent years, according to Chicago-based broker Mike Del Preto (pictured top).
He pointed out to Mortgage Professional America that even the slight drop in rates seen after the summer had marked little more than a blip in a general trend towards higher rates – and plenty of buyers were ready to push ahead with their purchasing plans instead of waiting for a potential fall in borrowing costs down the line.
“Today’s home prices are going to continue to go up. We have a supply and demand issue on our hands and it’s not going to get solved anytime soon,” Del Preto said. “With lack of supply and more buyer demand, [prices] are expected to continue to grow – especially if the rates do dip a little bit.
“But people can only stay still for so long. If clients had another kid and they’re busting at the seams in their home, eventually it doesn’t matter if your rate’s 2% or 3%.”
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First-time buyers remain convinced in value of homeownership
The Chicago market is also seeing plenty of first-time buyers, he said, because the rapidly rising price of renting a property in the city means it’s often in their best interests to purchase even amidst elevated rates.
Many of those buyers are conscious of a likely spike in house prices in the months ahead. “A lot of first-time buyers have been thinking about buying for the last couple of years but nothing’s really changed,” he said. “They’ve gotten used to it, and they’ve also seen home prices go up.
“People I talked to a year ago are coming back and saying, ‘That same house I wanted for $400,000 is now $425,000, and I don’t want to pay $450,000 for it a year from now. So let’s go get it.’”
Housing remains a solid investment despite higher costs
Would-be buyers remain convinced that the housing market is a solid long-term investment, he added, particularly with uncertainty about other areas of the economy and how they’ll fare in the months and years to come.
“I’ve had a couple of clients tell me that they’re a little scared of the stock market and what’s going to come with that, even though it’s been red-hot for while,” he said. “So they say, ‘I’ll put money in my house and that’s going to grow.’ Chicago is not a crazy market in terms of a ton of appreciation but also you don’t see too much depreciation either.”
What’s more, many buyers have also come to terms with the reality that interest rates almost certainly won’t return to the lows seen during the COVID-19 pandemic, barring an economic catastrophe.
“If you’ve been waiting for two years for this magic time to buy a home, for low interest rates that really don’t exist, you’re kind of living in a pipe dream,” he said. “Those that are more realistic know there’s some risk to this, but it’s not a ton of risk.”
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