March 27th, 2018 6:54 AM by Jackie A. Graves, President
you’re a homebuyer and are keeping a close eye on rising mortgage
rates, you may be wondering if higher rates will lead to a drop in
may be thinking: If mortgage rates rise, prices of homes for sale must fall
because otherwise those homes will become less affordable, right? However,
there’s no strong relationship between house prices and interest rates.
mortgage rates tend to rise when the economy is growing, the job market is
healthy and wages are rising. In this environment, people can afford more and
are more willing to take out a larger mortgage. Meanwhile, factors like
inventory and cost of construction drive housing prices.
rates indirectly affect home sales
slow and steady rise in mortgage rates alone,
such as what we’re seeing now, won’t be enough to impact housing prices,” says
Adam DeSanctis, national media manager at National Association of Realtors.
people, especially in a strong economy where wages are on the rise, can absorb
a few percentage points over time, DeSanctis says. On the other hand, if rates
shoot up like they did in 2013, then that could be enough to move the needle on
things considered, if you have rising mortgage rates over a longer period of
then you will see a weaker demand, especially in the lower end of the market.
In that case, you could see price appreciation moderate, which we do think will
happen this year,” DeSanctis says.
Increased inventory can offset rising rates
you’re looking for a home on the lower end of the market, then you have likely
faced an all-too-common problem: a lack of houses for sale. This is because
entry-level residential construction is down. As building materials increase in
price, so does the cost of construction. Builders can make up their profits by
building high-end homes, thus the lack of affordable housing.
have rising mortgage rates but inventory conditions are improving to the point
where you have less competition then that would moderate price growth. This is
something we’re hopeful for, especially for first-time buyers where that lower
end of the market is where demand is the strongest right now and it’s also
where there are the least amount of homes for sale,” DeSanctis says.
tariffs on building materials, such as the ones President Trump recently
announced, are potential roadblocks for entry-level construction growth.
Housing prices outpace wages
prices were up 5.9% nationally last month and have increased in every major
region. Although, wages are increasing, they’re above 3 percent growth year
over year, they’re still lagging behind the cost of housing. For example, home
prices in the West are up 9.6 percent, followed by the South with 5.4 percent,
the Midwest with 4.5 percent and the Northeast with 3.6 percent increases.
still seeing home prices exceed wage growth and in many markets at least double
or triple the pace of wages,” DeSanctis says.
To view the original
article click here Apply to
Buy a Home Apply to