Experts suggest that the recent gains in mortgage rates could cause the housing market to stagnate during 2017, as fewer Americans are likely to buy homes. This is because many people may decide to lock in their home loan rates, even if they are not entirely in love with their house. Freezing these rates for a period means that people will not easily be able to trade up for better or larger properties.
This scenario, known in the industry as 'rate lock', brings warnings from economists, who say it could affect the housing market in 2017. Recent home buying has been driven by seven years of historically low interest rates. With mortgage rates having risen since the election, however, and experts suggesting that these are likely to climb higher next year, home loans will become more expensive and current property owners are more likely to fix their rates.
The average rate for a 30-year fixed-rate loan is now 4.13 percent - pushing monthly costs up by over $70 from before the election. Over the lifetime of the loan, this equates to an additional $26,000.
Property owners in places where prices are already high are likely to see changing market conditions first. For example, the average home in California is worth close to $500,000, meaning that the average extra cost per month due to the rate change, is closer to $170.
Currently, around 66 percent of homeowners in the U.S. have rates under 4.5 percent. If rates rise about 5 percent, economists predict the rate lock theory could become a reality.
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