TransUnion Report Highlights How Interest Rate Changes Could Shift Local Housing Markets
TransUnion has released new research examining how relatively small changes in mortgage interest rates could affect housing markets across the United States, providing real estate professionals with localized data on where first-time homebuyer demand may strengthen or weaken. The report models how a 25 basis point increase or decrease from a 6.5% mortgage rate could change the number of “mortgage-ready renters” in metropolitan statistical areas (MSAs), offering insight into how affordability shifts may influence future home sales.
Report identifies four categories of housing markets
The report groups MSAs into four categories based on how sensitive they are to mortgage rate changes.
Rate-Cut Winners are markets projected to experience the strongest increase in mortgage-ready renters if rates decline, while seeing relatively limited declines if rates increase. Examples include Muncie, Indiana, Decatur, Illinois, Anderson, Indiana, and Baton Rouge, Louisiana.
Rate Hike Soft Markets are expected to experience the greatest reductions in mortgage-ready renters if rates rise, while seeing comparatively modest gains from lower rates. Those markets include Springfield, Ohio, Warner Robins, Georgia, Santa Fe, New Mexico, and Bend, Oregon.
Rate Sensitive markets are projected to experience above-average movement in either direction, with significant gains following rate cuts and significant losses if rates rise. Examples include Battle Creek and Flint, Michigan, along with several other Midwestern communities.
Rate Resilient Markets are expected to experience relatively modest changes regardless of whether mortgage rates increase or decrease. Major metropolitan areas such as New York, Los Angeles, Chicago, San Francisco, Honolulu, Dallas, Atlanta, Phoenix, and Washington, D.C., fall into this category, which TransUnion attributes to broader income diversity and housing price variability.
Nearly 30 million renters may be mortgage-ready
TransUnion estimates that approximately 30 million U.S. renters currently meet its definition of a mortgage-ready renter.
The company’s methodology defines mortgage-ready renters as households that satisfy several underwriting-related criteria, including:
- A household credit score of at least 661
- No bankruptcies or foreclosures
- No trade lines at least 120 days delinquent during the previous 12 months
- Household debt-to-income ratios that align with Freddie Mac underwriting guidelines
The analysis then evaluates affordability by estimating the maximum mortgage payment households could support under various interest rate scenarios and home price ranges.
Small interest rate movements could significantly affect affordability
Using national modeling, TransUnion found that even modest interest rate adjustments could materially affect the size of the mortgage-ready population.
According to the report:
- A 25 basis point reduction in mortgage rates could increase the number of mortgage-ready renters by approximately 4.9% to 11.9%, depending on the home’s purchase price.
- A 25 basis point increase could reduce the mortgage-ready population by roughly 4.2% to 10.4%.
The report notes that these impacts vary considerably by market, reinforcing the importance of analyzing local conditions rather than relying solely on national housing trends.
Inventory constraints remain a limiting factor
Although lower mortgage rates could expand the number of qualified buyers, TransUnion said limited housing inventory is expected to remain a significant constraint.
The report suggests that as more renters become financially prepared to purchase homes, some owners of rental properties may choose to sell rather than continue leasing. That dynamic could create additional listing opportunities in certain markets.
“Real estate professionals work extraordinarily hard to serve their clients and build business,” said Melanie Zimmerman, president of TransUnion Risk and Alternative Data Solutions, Inc. “TransUnion provides the tools and intelligence to help them work smarter and get ahead of the market, rather than reacting to it.”
Zimmerman added that markets with larger populations of mortgage-ready renters may also see more rental property owners consider selling their properties rather than continuing to rent them.
Implications for housing professionals
For real estate agents, brokers, and lenders, the research provides another data point for evaluating where affordability improvements could generate additional buyer activity if mortgage rates decline.
Rather than assuming all markets will respond similarly to future changes in mortgage rates, the report indicates that localized affordability differences may produce uneven shifts in buyer readiness. Understanding those regional variations could help professionals prioritize prospecting efforts, anticipate inventory changes, and better prepare for future market conditions.
