Rising Rates Don’t Mean Lower Home Prices

First American Chief Economist Mark Fleming was interviewed last week by Housing Wire on the potential impact to real estate sales and home prices if mortgage rates were to rise substantially. "What we basically discovered is that when you look at the pace of home sales, it's mixed bag of results. Sometimes rising rates actually reduce sales, and sometimes sales continue to grow in terms of their pace during rising rate environments." Why? Often rising rates means an improving economy which increases home sales.

Further Mark said, "Practically all the time during rising-rate environments, house prices continue to go up or they don't fall; we call that downside sticky. This is because all of those existing homeowners tend to not want to list their homes for sale and the housing market doesn't collapse." True. In the future if mortgage rates hit 4% or 5% we will see even fewer homes for sale as many homeowners now have a mortgage rate less than 3% and moving to a new home will be too costly.

If you look at Denver's home prices they soared from about $25k in 1971 to $100k by 1986 during a time when mortgage rates went from 6% to 18%. Demographics drive home prices by far the most. Back in the early 70's our nation experienced a Housing Boom like we had never seen before. Why? Baby Boomers were turning 25, getting married, having kids, and buying homes. Today, this is happening AGAIN as Millennials turn 32 and this will continue through at least 2024.