Rising rates cause buyers to tap brakes

More homebuyers are backing out of real estate purchases at the last minute as rising mortgage rates make borrowing more costly, Bloomberg reported.

One Seattle-area couple told Bloomberg that they were in the process of buying a $400,000 home when they learned that their mortgage payment would be about $300 more a month than it would’ve been in February. That prompted them to put their home search on hold.

Mortgage rates have been increasing since May, and two weeks ago, they surged to a two-year high. Some housing experts say that’s cooling demand from home buyers as it chips away at affordability. The 30-year fixed-rate mortgage has risen from a record low average of 3.31 percent in November to 4.51 percent today, according to Freddie Mac.

“A lot of agents are reporting that buyers were in escrow on a home, and then rates went up and they no longer were able to afford the home,” said Ellen Haberle, a real estate economist for Seattle-based brokerage Redfin.

Contracts to buy existing homes dropped 1.3 percent in July – the largest monthly decline this year, according to the National Association of Realtors.

“There is a bigger monthly payment shock in the high-cost areas,” said Lawrence Yun, NAR’s chief economist. “Higher interest rates may pull demand out.”