Will Rising Mortgage Rates Drive Buyers Away?

Mortgage rates have been climbing all year. Will buyers decide they've had it?

Mortgage rates have been rising since the start of the year. Last week, they climbed substantially. And that trend could continue as 2022 moves along, to the point where it causes a notable buyer pullback.

Here's a summary of mortgage rates for March 28:

Data source: The Ascent's national mortgage interest rate tracking.

30-year mortgage rates

The average 30-year mortgage rate today is 4.711%, up from 4.647% on Friday. At the current pace, the 30-year loan could easily top 5% this year.

20-year mortgage rates

The average 20-year mortgage rate today is 4.459%, up from 4.400% on Friday. That's a pretty big jump, and it wouldn't be surprising to see the 20-year loan near 5% this year.

15-year mortgage rates

The average 15-year mortgage rate today is 3.838%, up from 3.776% on Friday. We could see the 15-year loan reach or top 4% this year -- easily -- based on its recent growth pace.

5/1 ARMs

The average 5/1 ARM rate is 3.564%, up from 3.507% on Friday. The upside of an adjustable-rate mortgage is clear -- getting to lock in lower monthly payments initially. But in time, the rate on a 5/1 ARM could climb, especially since today's rate is pretty low.

Will rising mortgage rates lead to less buyer demand?

Last year, home buyers grappled with sky-high home prices, but mortgage rates were low enough to help offset them. This year, that isn't the case. Buyers are facing the double whammy of inflated home prices and higher borrowing costs. And that combination could cause the housing market to finally cool off.

If buyers start dropping out of the market, it could lead to a notable dip in home prices. This isn't to say that property values will reach pre-pandemic levels this year. But they could drop from where they are today, making them more affordable.

While some buyers may decide to exit the housing market in the wake of higher mortgage rates, those who hold firm could be rewarded with less competition and lower home prices than what we're seeing today. And while we shouldn't expect borrowing rates to drop, prospective buyers might manage to reap savings by shopping around with different mortgage lenders for the best deals.