The impact of rising rates on home prices

We’ve all heard about interest rates this week, but 𝙬𝙝𝙖𝙩 𝙙𝙤 𝙧𝙞𝙨𝙞𝙣𝙜 𝙧𝙖𝙩𝙚𝙨 𝙢𝙚𝙖𝙣 𝙛𝙤𝙧 𝙝𝙤𝙢𝙚 𝙥𝙧𝙞𝙘𝙚𝙨?

“Rising interest rates” do not always mean “falling prices”, or at least, if you’re looking at things from a long-term perspective.

We are currently experiencing an ever changing market with rates in flux as the Fed tries to balance the market and battle inflation through various monetary policies.

Rates are up almost 2.5% for a 30 year fixed rate mortgage, since this time last year. And while rates have been on the rise for most of 2022, appreciation continues to remain with projections of 11% in 2022 and 3-4% in 2023.

We know you’re probably thinking… “If the cost of borrowing is higher, then there should be less people borrowing. Therefore, decreasing demand and applying pressure toward lowering prices.” That thinking isn’t completely wrong, it makes total sense to feel that way, but historically it’s not accurate. There is not a complete inverse relationship between prices and rates.

Over the past 45 years, we’ve seen an average yearly appreciation of 5.1%.

While the Fed continues to increase rates (potentially 10 more times) over the course of the next year, we should expect to see rates tick up and down along the way as it reacts to demand and the overall economy.

𝘽𝙤𝙩𝙩𝙤𝙢 𝙇𝙞𝙣𝙚: Interest rates DO affect prices, but not in a way we might expect. Rates tend to decelerate appreciation, especially in today’s market with buyer demand outpacing seller and builder inventory.