Will Increasing Mortgage Rates Impact Home Prices?

There has been some discussion recently on mortgage rates concerning home prices. Some believe home prices should decrease if there is a rapid rise in mortgage rates. Logically, it makes the most sense for the cost of the house to drop when interest rates are rising, but this is not always the case. Here, we'll explore mortgage rates and home prices to see if there is a direct correlation between the two.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Mortgage Rates & Home Prices

The theory of home prices decreasing when mortgages increase is typically discussed by future home buyers. They often think if they pay higher mortgage rates, they should see a lower cost elsewhere in their homebuying budget. However, as mortgage rates continue to rise, they have not directly impacted increasing home prices. Several other factors have contributed to this, including:

• The rise in mortgage rates has been gradual, so it has not had a sudden or dramatic impact on home prices.
• Despite the rise in mortgage rates, there is still a strong need for housing due to population growth and the limited supply of homes relative to demand.
• Mortgage rates are still historically low, so they are relatively affordable even with the recent increases.

However, sometimes high mortgage rates can cause a decrease in home buying. If sellers see less demand for housing, they may lower their home prices to receive competitive offers.

What Factors Impact Home Prices?

As the economy succeeds, incomes rise and interest rates go up, including the price of homes. Economic advances have shown that rates and home prices are more likely to grow together.

Several other factors play a role in home prices and mortgage rates that buyers must consider. The mortgage rate is only one part of the total home cost. Many other factors influence home prices in the current real estate market, such as job growth and consumer confidence. Buyers must consider these factors when trying to predict home prices. Higher inflation, lower unemployment, and faster wage growth have also been linked to higher home value appreciation.

It's Still Possible to Find an Affordable Home

For buyers, this is an important lesson to remember. Although mortgage rates may be rising, it does not necessarily mean home prices will decrease. As the economy strengthens, mortgage rates and home prices will likely continue to grow. If you're in the market for a new home, don't let rising mortgage rates deter you – home prices are still rising.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.