Home Buyers May Get a Mortgage Rate Break This Spring

March 7, 2018 — 2:06 PM EST

Rising mortgage rates and increasing home values may dampen the spring real estate season for home sellers, but for buyers, it means a less frenzied real estate market than a year ago. In its latest Real Estate Market Report, internet-based real estate company Zillow reported that home values are increasing 6.7%, which it said is the slowest growth in more than a year, following 7.6% appreciation seen last summer. Currently, the average home price around the country stands at $207,600.

In an interview with real estate news site Inman, Zillow's senior economist Aaron Terrazas said that the home price appreciation last year was not sustainable and that a decline to a more normal rate has long been expected. However, he noted that this is nothing for real estate players to worry about, given demand is "very high" and inventory "remains tight." According to Inman, there are about 10% fewer homes for sale than there were a year ago. Terrazas said that, even with fewer homes on the market, buyers are choosing to wait it out for the perfect home at the right price, which could limit any bidding wars this season.

[Figure out how much home you can afford with our mortgage calculator.]

While Zillow believes that the real estate selling season will hold up this year, even if it's at a more normalized pace, that may all change if mortgage rates continue their ascent. Even a slight uptick in rates could shut first-time buyers out of the housing market.

According to Freddie Mac, for the week ending March 1, the interest rate on a 30-year fixed-rate mortgage increased 3 basis points to 4.43%. The rate was at 4.40% a week ago and 4.10% a year ago. Freddie Mac noted that, since the start of 2018, the 30-year fixed-rate mortgage interest rate has been on a "tear," increasing 48 basis points. The rate has increased for eight straight weeks.

"As we documented, historically when mortgage rates surge, housing swoons. But we think strength in the economy and pent-up housing demand should allow U.S. housing markets to post modest growth this year even with higher mortgage rates," Freddie Mac wrote on its website when announcing mortgage interest rates for the week ending March 1. "We really have to wait for housing markets to heat up in spring, but early indications are that housing demand remains robust to these rate increases. The MBA [Mortgage Bankers Association] reported in their latest weekly applications survey that home purchase mortgage originations were up 3% from a year ago."