No, rising mortgage rates do not mean home prices will fall

The Federal Reserve raised short-term interest rates again this week, a week when the Freddie Mac weekly survey showed the 30 year fixed rate Mortgage to be 4.45%, up 0.5% since the beginning of the year.
Almost inevitably, the spectre of rising mortgage rates has brought concern that the impact will be felt in home prices – as in they might stop rising or even fall.
Thus, a recent report by Freddie Mac Nowhere to go but up? is very timely.
The report looks at the impact of rising mortgage rates on the six occasions since 1990 that mortgage rates have moved up by more than 1%.
Freddie Mac finds that the greatest impact is felt by home builders, mortgage brokers and real estate agents, As for home prices, Freddie Mac writes:

“While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions. As both supply and demand move together in this way they have offsetting effects on price—lower demand decreases price and lower supply increases price. Exhibit 6 shows the Freddie Mac National House Price Index from 1990 to June 2017. It is unresponsive to movements in interest rates. In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices. However, the combination of increasing rates and increasing house prices would be a double hit to affordability for first-time home buyers.”

The table below shows the detailed movements in the various categories relating to home sales during the 6 periods of rising mortgage rates.

Mortgage rates

And finally, I repeat the chart below showing the direct correlation between the 30 year FRM and the yield on the10-year Treasury.

Mortgage rates

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, please contact Andrew Oliver on 617.834.8205 or Kathleen Murphy on 603.498.6817.

If you are looking to buy, we will contact you immediately when a house that meets your needs is available. In this market you need to have somebody looking after your interests.

Are you thinking about selling? Read  Which broker should I choose to sell my house?

Andrew Oliver and Kathleen Murphy are Realtors with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated

@OliverReports

 

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