Will Increasing Mortgage Rates Impact Home Prices?
We are in the midst of a very active real estate market in Denver, and many people are talking about home prices in relation to mortgage rates. While mortgage rates have been relatively staple, some believe if there is a rapid rise of mortgage rates, home prices should decrease.
Logically it does make sense for the price of the house to drop when interest rates are rising, but this is not always the case.
As a home buyer you would like to think that if you are paying higher rates on your mortgage, you should be able to see a decrease in cost somewhere else. The truth is that mortgage rates rise tend to rise when the economy is in better shape. As the economy succeeds, incomes rise, rates go up... and so do home prices.
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.
As the economy progresses and strengthens, mortgage rates and home prices will fluctuate. It is a misconception to say 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.