Dec 8, 2014

How a rise in interest rates will effect home prices

Reports have been circulating that if mortgage interest rates begin to rise rapidly, home prices will drop substantially. It makes sense, because buyers can afford less home if they are paying more in interest. Typically a 1% rise in mortgage rates equals a 10% rise in the overall cost of the home for a buyer (check out this article that explains it).

However, that has not been the case over the past 30+ years. Mortgage interest rates have quickly shot up 4 times in the past 35 years. And you can see from this chart ( from Keeping Current Matters) that an big increase in rates doesn't mean that home prices will fall.

We'll have to see if history continues to repeat when it comes to interest rates and home prices.

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