According to a new report from Fannie Mae, the recent rise in mortgage rates is unlikely to have any significant impact on home prices in the near future. Researchers for Fannie Mae looked at mortgage rates going back more than 20 years, and found that although rising mortgage rates may affect the number of sales, they were unlikely to impact house prices.
The study looked at house price and sales data, and historic mortgage rates during two particular periods when rates rapidly increased. The first period took place from October 1993 to December 1994 when the rates rose from 6.8% to 9.2%, while the second period occurred between October 1998 and May 2000 when rates rose from 6.7% to 8.5%. When the rates rose in the early 90s house prices leveled off and then dropped slightly, but during the second period of rate increases, property prices weren’t impacted at all.
The lead researcher on the Fannie Mae study, Mark Palim, spoke to CNN Money about this report and pointed out that even though rates might change, sellers are often reluctant to lower prices, and buyers are generally willing to find ways to afford a new home. One of the ways they do this is by choosing rate loans that will keep prices low during the first few years that are later adjusted to be higher. Other factors such as rising income levels, increasing employment rates also mean people are more able to pay higher prices for homes.
Not everyone agrees with this new report from Fannie Mae, and some economists feel rising rates will definitely impact house prices, and could affect the housing market recovery. The chief economist for Moody’s Analytics looked at 20 years of data on house prices and mortgage rates and came to the conclusion that every time mortgage rates rose by a percentage point, house prices lowered by half a percentage point. However he did conclude that mortgage rates are still affordable.
The chief economist for the Mortgage Bankers Association, Jay Brinkmann, thinks the rate increases will impact the type of house chosen by buyers, and that they will choose smaller homes in cheaper neighborhoods, but that they will still keep buying. This assessment is not something that Laurence Yun, chief economist for the National Association of Realtors necessarily agrees with. He feels that increasing mortgage rates will affect the number of sales, leading to an increase in inventory, and ultimately falling house prices.