Monday March 26, 2018 by The Mettle Group
A lot of people think that rising interest rates will result in lower house prices. What they don’t know is prices are determined by supply and demand. While rising rates may slow demand, they also affect supply.
“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%.
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.
It may actually be a good time for you to purchase your new home sooner rather than later. We do not see any reason for rates to stop climbing and the cost to wait may be bigger than you may think.
Below is a chart showing the impact of waiting only one year to buy could have.
With interest rates on the rise, you might be considering buying sooner than later. If you’re searching on the most popular house hunting apps, you could potentially be wasting up to 47% of your time since their data is dated. We’ve discovered a better tool!
This tool is called HomeScout. This app has many of the same user-friendly mobile features, but unlike the other apps, this has one hundred percent live access to the multiple listing services and allows clients to search for homes with the exact same power and information that Realtors do.
Download HomeScout FREE today: https://homescout.app.link/SEARCHBETTER
This information was given to us by Keeping Current Matters.