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

    Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices | Simplifying The Market

    Recently, Freddie Mac 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.

    Many believe that an increase in mortgage rates will cause a slowdown in purchases which would, in turn, lead to a fall in house values. Ultimately, however, 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 report, in acknowledging this situation, concluded 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 | Simplifying The Market

    Bottom Line

    Whether you are a move-up buyer or first-time buyer, waiting to purchase your next home based on the belief that prices will fall because of rising mortgage rates makes no sense.

    Rajeev Vashist

    Serving Northern Virginia real estate needs for over 27 years – Rajeev Vashist has built his reputation through surpassing his clients’ expectations at every turn. Whether they are buying or selling, his knowledge of the local market is unparalleled and has proven to be advantageous in every transaction for his clients. Rajeev provides each client with extraordinary customer care and services, always implementing –cutting-edge technology in the process, which has earned him raving reviews from his past clients. His passion for real estate and focused determination has helped him excel in his career and afforded him with numerous achievement awards. Rajeev is recognized for consistently placing in the top one percent of all real estate professionals in America. Specializing in navigating the ups and downs of the Northern Virginia Real Estate market, his integrity, dedication, insight, and hard work are only a few of the reasons that over 98 percent of Rajeev’s business comes from repeat clients and referrals. His clients acknowledge the value of his unending, local expertise, negotiation skills, and exceptional personal attention– the level discriminating clientele expect and deserve.
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