There has been some recent discussion about home prices in relation to mortgage rates. Some believe that if mortgage rates rise rapidly, 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 that 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, and the price of the home does.
A recent study by John Burns Real Estate Consulting found that 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 mortgage rates since people can afford to take out more.
Bottom Line
As the economy progresses and strengthens, mortgage rates and home prices will fluctuate. It is a misconception 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.
