Residential
How Higher Interest Rates Affect Homebuying Mortgage interest rates are expected to rise in 2022, making it harder for households—especially first-time homebuyers and low-income households—to purchase a home. By Clare Losey
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Home Price $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000 $300,000 $400,000 $500,000 $750,000
ortgage interest rates play an integral role in one’s ability to buy a home. While home-price appreciation averaged nearly 20 percent nationally in 2021, diminishing many households’ ability to purchase a home, mortgage interest rates reached a record low 2.65 percent. This helped mitigate the impact of high appreciation rates. In response to rising inflation, the Federal Reserve could raise the federal funds rate as many as seven times in 2022. One potential by-product of this is higher mortgage interest rates. At the beginning of the year, economists projected mortgage interest rates would be between 3.5 and 4 percent by the end of 2022 (after hovering around 3 percent at the beginning of 2022). However, forecasts will likely be revised Table 1. Monthly Mortgage Payment for Conventional Loan upward in response by Home Price, Mortgage Interest Rate to the news of seven Mortgage Interest Rate potential rate hikes. Such an increase will 2.5% 2.75% 3% 3.25% 3.5% 3.75% 4% 4.25% diminish purchase $649 $660 $671 $681 $693 $704 $715 $727 affordability, making $812 $825 $838 $852 $866 $880 $894 $909 it even more difficult $974 $990 $1,006 $1,022 $1,039 $1,056 $1,073 $1,090 for lower-income and $1,137 $1,155 $1,174 $1,193 $1,212 $1,232 $1,252 $1,272 first-time buyers to $1,299 $1,320 $1,341 $1,363 $1,385 $1,408 $1,431 $1,454 purchase a home. $1,461 $1,624 $1,948 $2,598 $3,247 $4,871
$1,485 $1,650 $1,980 $2,640 $3,300 $4,949
$1,509 $1,677 $2,012 $2,682 $3,353 $5,030
$1,533 $1,704 $2,044 $2,726 $3,407 $5,111
$1,558 $1,731 $2,078 $2,770 $3,463 $5,194
$1,584 $1,760 $2,111 $2,815 $3,519 $5,279
$1,609 $1,788 $2,146 $2,861 $3,576 $5,364
$1,635 $1,817 $2,181 $2,908 $3,634 $5,452
Note: Assumes a 30-year loan term, 80 percent loan-to-value ratio, and property taxes and insurance collectively amounting to 4 percent of home price. Source: Texas Real Estate Research Center at Texas A&M University
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Rising Interest Rates and Repeat Buyers Table 1 shows how much the total monthly mortgage payment for TG
