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Will Rising Mortgage Rates Impact Home Prices?

filed under: Real Estate posted on June 4th, 2018

Will Home Prices Fall as Mortgage Rates Rise? | Simplifying The Market

Keeping Current Matters update:

Mortgage interest rates have increased by more than half of a point since the beginning of the year.

They are projected to increase by an additional half of a point by year’s end. Because of this increase in rates, some are guessing that home prices will depreciate.

However, some prominent experts in the housing industry doubt that home values will be negatively impacted by the rise in rates.

Mark FlemingFirst American’s Chief Economist:

“Understanding the resiliency of the housing market in a rising mortgage rate environment puts the likely rise in mortgage rates into perspective – they are unlikely to materially impact the housing market…

The driving force behind the increase are healthy economic conditions…The healthy economy encourages more homeownership demand and spurs household income growth, which increases consumer house-buying power. Mortgage rates are on the rise because of a stronger economy and our housing market is well positioned to adapt.”

Terry LoebsFounder of Pulsenomics:

“Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices. These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers.”

Laurie GoodmanCodirector of the Housing Finance Policy Center at the Urban Institute:

“Higher interest rates are generally positive for home prices, despite decreasing affordability…There were only three periods of prolonged higher rates in 1994, 2000, and the ‘taper tantrum’ in 2013. In each period, home price appreciation was robust.”

Industry reports are also calling for substantial home price appreciation this year. Here are three examples:


Bottom Line

As Freddie Mac reported earlier this year in their Insights Report“Nowhere to go but up? How increasing mortgage rates could affect housing,”

“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.”

Cincinnati Home Sales

Sales in the higher price ranges (above $450,000) have softened in some areas.  Interest rates, lack of homes for sale and buyers thinking twice may be contributing.

Also, there is a push to raise down payments up from 3.5% to 5% on some special conventional loans (not FHA loans) which could halt some borrowers from moving to upper price ranges.  There is some concern that lower down payments coupled with lower mortgage rates are fueling an unhealthy rise in home sale prices.  If lenders make a move to raise down payment requirements and interest rates rise – home sales could feel the impact.




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