Now that mortgage rates are rising, homeowners who bought when the rates were lower may be hesitant to trade up to a larger home. It's what some economists call "rate lock," and they say it could dampen buyer demand in 2017, The Wall Street Journal reports. Rates were at historical lows for the past seven years, prompting greater home buying activity as consumers enjoyed lower borrowing costs. Economists say they are closely monitoring how the market reacts now that rates have risen above 4 percent. Sixty-six percent of homeowners in the U.S. have mortgage rates of less than 4.5 percent, according to CoreLogic. Rates would need to rise above 5 percent for a large number of homeowners to face rate lock, the Journal reports. Mortgage rates have increased more than half a percentage point since the presidential election in November, with the average for a 30-year fixed-rate mortgage rising from 3.54 percent beforehand to 4.13 percent last week — the highest average since October 2014, according to Freddie Mac. That means the monthly cost of owning a typical home in the U.S. has increased by more than $70 a month, or about $26,000 over the life of a 30-year loan, according to Black Knight Financial Services. "It doesn’t take much to turn off the faucet in this market because inventory is so low and prices have gone up so quickly," says Nela Richardson, chief economist at Redfin. Homeowners in high-priced coastal markets may feel the higher rates first. In areas of California where the median price of a home is nearly $500,000, homeowners are paying about $170 more a month due to the recent rise in mortgage rates. "I suspect [the rise in rates is] already having an impact at the margin," Lou Barnes, a capital market analyst at Premier Mortgage Group, told the Journal. "Another half a percent and the impact will be substantial." All eyes are on the Federal Reserve, which is predicted to raise short-term interest rates this month. Mortgage rates are tied to Treasury bond yield but can also rise during periods of inflation, the Journal explains.

Source: The Wall Street Journal