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Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices

Recently, Freddie Mac published an Insight Report titled Nowhere to go but up? How increasing mortgage rates could affect housing. The report focused on the impact the projected rise in mortgage rates might have on the housing market this year.

Many believe that an increase in mortgage rates will cause a slowdown in purchases which would, in turn, lead to a fall in house values. Ultimately, however, prices are determined by supply and demand and while rising mortgage rates may slow demand, they also affect supply. From the report:

 “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%.

Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices | MyKCM

Bottom Line

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.

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About Area

The ancient mountains, rolling hills, and pristine creeks and rivers of the North Georgia mountains have a way of calling you out into the wild, no matter the season. And the majestic mountain setting that makes the outdoors so fun and inviting also provides some of the most amazing backdrops for a home as well. Many natives to the area have perfected the art of “porch swing sitting” and will be happy to share their notes with those who need to relax a bit. With so many homes having views of nothing but the majesty of nature in many different forms, it’s no wonder the art of sitting quietly to unwind is widespread. It’s also widely understood and ensured that these mountains will remain pristine for many generations to come. The Chattahoochee National Forest makes up a large majority of land in the region, and therefore it will remain virtually unchanged and undeveloped by people for many, many years to come. The bounties of the land and celebration of mountain heritage are favorite themes for the many festivals held throughout the area and throughout the year. Local farmers, mountain artisans and entertainers have a huge, artistic and loving stage on which to showcase their talents. People from all over the world and from all walks of life come to enjoy the good food and good times of these southern Appalachian festivals. The incredible display of Mother Nature in these mountains is definitely a great reason to find a home here, add to that the never ending events and abundance of talented and lovely people and there’s really no reason not to.

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