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Home Prices DO NOT Fall with Rising Mortgage Rates

Date: May 30, 2018 Posted by Joey Remondino Category: ,

Years ago before my career as Realtor in Northern VA, I was a lender with a regional bank.   Fortunately this has given me a more detailed experience than most real estate agents.  I am often asked if interest rates are going up, and could this cause home prices to drop?  Mortgage rates can be challenging to predict with many economic levers that can cause them to move up or down.   With the looming predictions of climbing rates, I can say home prices do not fall with rising mortgage rates alone.

Freddie Mac recently published an Insight Report titled Nowhere to go but up? How increasing mortgage rates could affect housing. The report focused on the impact the projected rise in mortgage rates might have on the housing market this year.

Some are concerned that a rise in mortgage rates will cause a slowdown in sales which would lead to a fall in house values in Northern VA. However, keep in mind prices are determined by supply and demand and while rising mortgage rates may slow demand, they also affect supply. From the report:

“For current homeowners, the decision to buy a new home is typically linked to their decision to sell their current home… Because of this link, the financing costs of the existing mortgage are part of the homeowner’s decision of whether and when to move.

Once financing costs for a new mortgage rise above the rate borrowers are paying for their current mortgage, borrowers would have to give up below-market financing to sell their home.

Instead, they may choose to delay both the sale of their existing home and the purchase of a new home to maintain the advantageous financing.”

The Freddie Mac believes that prices are not adversely impacted by higher mortgage rates. They explained:

“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.

They went on to reveal that the Freddie Mac National House Price Index 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.”

The following graph, based on data from the report, reveals what happened to home prices the last six times mortgage rates rose by at least 1%.


Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices | MyKCM

Bottom Line

Waiting to purchase your next home based on the belief that prices will fall makes no sense.  Keep in mind home prices DO NOT fall with rising mortgage rates alone.

If you are considering if purchasing a home is right for you, give me a call.  I work with buyers in Alexandria, Arlington, Ashburn, Burke, Centreville, Chantilly, Dunn Loring, City of Fairfax, Falls Church, Great Falls, Herndon, McLean, Oakton, Reston, Sterling, Tysons Corner, Vienna, or anywhere in Northern VA.

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Here is the original article from my Keeping Current Matters Blog —  Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices