Homebuyers Locking In Affordability

Fully aware both home prices and mortgage interest rates are on the rise, home buyers are hedging their bets with fixed rate mortgages (FRMs) and sizable down payments to lock in affordable housing.

A LendingTree survey revealed that 64 percent of prospective homebuyers expect mortgage rates to rise and 68 percent expect home prices to rise over the next 12 months.

Those expectations of rising costs prompted 57 percent of respondents to say they plan to put 15 percent or more down toward the purchase of the home compared to only 44 percent opting for a down payment that's less than 15 percent.

Home buyers also plan to finance their home purchase with FRMs to keep housing affordable - 45 percent of home seekers expect to apply for a 30-year FRM, 36 percent a 15-year FRM and only 7 percent an adjustable rate mortgage (ARM). The remaining 12 percent weren't sure how'd they finance their home.

Conducted online by Research Data Technology from May 21 to May 23, 2013, LendingTree's survey queried 600 people in the market to buy a home within the next 12 months.

"The housing market is stabilizing and financing is becoming more available for potential homebuyers," said Doug Lebda, founder and CEO of LendingTree.com.

"Increasing home prices are providing would-be sellers with the confidence needed to take action, while rising interest rates are placing a sense of urgency on potential home buyers. Together this creates a unique window of opportunity for buyers and sellers to take advantage of the market while home prices and rates are still reasonably affordable," Lebda added.

Higher interest rates have already forced some existing homeowners out of the refinance market.

Refinancing fell 15.6 percent in a single week in late June, after interest rates peaked for the year at 4.46 percent, according to the Mortgage Bankers Association (MBA). Refinancing is down 29.5 percent in June, compared to a year ago.

Fortunately, home buying wasn't hampered as much by higher mortgage rates. Home buying mortgage applications crept up by 0.1 percent in June compared to May and remain 12.3 percent higher than a year ago.

Capital Economics surmised the rise in rates is prompting more fence-sitters to leave the perch and buy before rates and home prices knock them out of contention for a home buy.

LendingTree also found financial and habitat circumstances are motivating home shoppers to become homebuyers.

Approximately 42 percent of potential homebuyers cited the financial benefits of owning versus renting as a main driver for their decision to buy while 32 percent said they needed more space to accommodate growing families.

Other reasons for seeking a home include upgrading to better neighborhoods (32 percent), relocating (24 percent), downsizing for affordability (10 percent) or downsizing because of empty-nester status (9 percent).

More LendingTree findings

LendingTree's survey also found:

 

  • Greater urgency to buy in some regions - 72 percent of home buyers residing in the western United States anticipate higher residential prices compared to 59 percent of those in the northeastern United States.

     

  • Most potential home buyers are also aware of the benefits of shopping around for a mortgage - 66 percent believe there is a 25 to 75 basis points difference in interest rates to be had by shopping around.

    Also, 49 percent of respondents said they would apply the money saved on their interest rate towards debt reduction.

     

  • Those polled cited mortgage brokers as the most influential source for mortgage-related information, followed by the Internet and then real estate brokers, the LendingTree survey found.

     

  • Active home seekers (80 percent) are more optimistic about their households' financial condition 12 months from now, compared to casual home seekers (70 percent).

    Less active home seekers cited they require more confidence in their household financial situations before home ownership moves into sharper focus.

     

  • Time consuming paperwork is considered the most annoying aspect of the home buying process for 31 percent of respondents.

     

  • Uncertainty about the fairness of their mortgage rate (30 percent) is tied with complexity of terms (30 percent) for the top causes of frustration in shopping for a mortgage.