Rates rose another 1/8 to 1/4 percent over the last few weeks and are now almost 1% higher than 2020’s lows.
(as a sidebar, they are about where they were last March…so they are not THAT high)
But, whenever rates do start to rise in a hurry, I invariably see pundits explaining how rising rates will “crash the housing market!”
Are they right?
“Rising mortgage rates not likely to crimp existing home sales”
That was a headline in this recent “National Mortgage News” article.
From the article:
“Existing home sales activity is more influenced by the causes behind mortgage rates rising, not just simply that they have gone up, a report from First American said.
In the past 30 years, mortgage rates rose significantly six times. In two of those periods, the higher rates caused existing home sales to decline.”
Home sales fell after rates went up after the 1994 and 2006 rate increases, but those declines were driven more by economic factors (weak economy; excess inventory; declining homebuying demographic) than by rising rates.
Today’s housing environment continues to be influenced by massive inventory shortages and surging numbers of millennials coming into homebuying age – so a small rise in rates is not likely to inhibit sales activity.
What Could Crimp Existing Home Sales?
A much larger than expected rate increase (3% or more) would significantly impact affordability and therefore also significantly impact sales activity.
But, that would entail a return of 2006 rates (high 6% range) at least – and that is unlikely for several reasons:
- Government Debt. Our debt-burdened government and economy cannot afford higher rates, so the Fed and the powers that be will do everything they can to keep rates low.
- Inflation. Inflation may not be as serious as many market watchers believe (tomorrow’s blog) and will thus not push rates up as much as many expect.
- Weak Economy. The economy remains relatively weak overall (per Jeff Snider of Alhambra Partners), and recessionary pressures usually push rates down.
Here are the 5 reasons why rising rates will crash the housing market:
- Alaska will actually pay you to move there.
- Real estate in Alaska is very affordable.
- Few states (if any) are as breathtakingly beautiful as Alaska.
- Alaska has some of the best hunting and fishing anywhere in the world.
- Life is one big adventure in Alaska.
OK – those are actually 5 reasons to move to Alaska (according to the internet) because there are NO reasons why our current rate environment will crash the market. (my subject line was just me having a bit of fun with some “click bait” – that apparently worked too if you got this far into my blog 😊)
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