Will Increasing Mortgage Rates Impact Home Prices?

There has been some discussion recently on home prices in relation to mortgage rates. Some believe if there is a rapid rise of mortgage rates, home prices should decrease. Logically it makes the most sense for the price of the house to drop when interest rates are rising, but this is not always the case.

This theory of home prices decreasing is typically discussed by future home buyers. As a buyer you would like to think if you are paying higher rates on your mortgage, you should be able to see a decrease in cost somewhere else. Unfortunately, these rates are rising because the economy is in better shape. As the economy succeeds, incomes rise, rates go up, as well as the price of the home.

A recent study by the 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. Coincidentally, these same factors are causing the rise in the mortgage rates since people can afford to take out more.

Debunking the Misconception

Contrary to popular belief, increasing mortgage rates do not necessarily result in decreased home prices. The misconception is often discussed among prospective homebuyers who assume that higher mortgage rates should lead to overall affordability. However, several factors contribute to a different outcome:

1. Economic Growth: Rising mortgage rates are typically a reflection of a thriving economy. As incomes and job growth improve, people can afford higher mortgage payments, which drives both rates and home prices upward.

2. Study Findings: According to a recent study by the John Burns Real Estate Consulting, the impact of mortgage rates on home prices is minimal. Instead, factors like local job growth and increasing wages have a more significant influence on the housing market and price appreciation.

The Dynamic Relationship Understanding the interplay between economic growth, mortgage rates, and home prices:

1. Economic Progression: As the economy advances and strengthens, mortgage rates and home prices tend to fluctuate. Positive economic indicators often coincide with both higher rates and increased housing costs.

For more blog posts on this topic, read:

Mortgage Options in Tennessee: Which One is Right for You: https://www.ryanboggsrealestate.com/post/mortgage-options-in-tennessee-which-one-is-right-for-you

Understanding Mortgage Rates and How to Secure the Best Deal: A Comprehensive Guide: https://www.ryanboggsrealestate.com/post/understanding-mortgage-rates-and-how-to-secure-the-best-deal-a-comprehensive-guide

Bottom Line

It is important to debunk the misconception that rising mortgage rates will automatically lead to lower home prices. The dynamics of the real estate market are influenced by multiple factors, with economic growth playing a vital role. Stay informed about the Middle Tennessee real estate market and recognize that as the economy thrives, both mortgage rates and home prices are likely to rise together. Make informed decisions based on a comprehensive understanding of the market and its dynamics.