Will Increasing Mortgage Rates Impact Home Prices?

There has been some discussion recently on home prices in relation to mortgage rates. Some believe if there is a rapid rise of mortgage rates, home prices should decrease. Logically it makes the most sense for the price of the house to drop when interest rates are rising, but this is not always the case.

This theory of home prices decreasing is typically discussed by future home buyers. As a buyer, you might think that if you are paying higher rates on your mortgage, you should see a decrease in cost somewhere else. Unfortunately, these rates are rising because the economy is in better shape. As the economy succeeds, incomes rise, rates go up—and so does the price of the home.

A recent study by John Burns Real Estate Consulting found mortgage rates have very little impact on the cost of the home. The housing market and price increases are affected by things like job growth in the area and rising wages. Coincidentally, these same factors are causing the rise in the mortgage rates since people can afford to take out more.

The Takeaway

As the economy progresses and strengthens, mortgage rates and home prices will fluctuate. It is a misconception that as rates increase, home prices will decrease. Advances in the economy have shown that rates and home prices are more likely to increase together.