Thought you might be asking the same question that many of our clients are wondering: “What is the impact of higher rates on home values?” Let’s start with a quick quote, which I think sums it up nicely.

The (rise in rates) was considerable, but no one should be all that alarmed, nor fear that the housing market will come to any kind of abrupt standstill.

After all, rates are only about where they began 2016, and all expectations at that time were that the housing market would be doing fine. It also bears remembering that many long-range forecasts thought that mortgage rates would be well above even these levels by this time. – HSH

But what does history tell us? Are periods of higher rates the killer of home appreciation?

History tells us that periods of rapidly increasing interest rates generally coincide with a healthy and expanding real estate market. Rates typically rise in a growing economy. With the economy expanding and more money flowing, the market will pay higher rates and higher prices for homes.  Granted it does not feel good today as a borrower to pay higher rates, but this is a sign that the economy is healthy and expanding.

Keep in mind that anything less than 6% is incredibly low for a 30 year fixed mortgage, so don’t think you have missed an opportunity to lock in low rates; simply reset your perspective. We are fortunate to see rates well below the historic averages shown below.

The alternative of course is renting, but look at the trajectory of rents since 2011! Rents continue to hit new all time highs across the country, afford you no tax deductions, and if you think about it, are like financing your housing on a one year adjustable rate mortgage.  What I mean by that is each year your rent can climb in perpetuity. Unless you live in a government mandated rent restriction area, you have no protection against a growing housing expense, where at least with a mortgage you can fix that cost with a fixed rate and payment.

Median Rent Since 1988

I’ll leave you with one more chart to consider. Below you will see how each state has increased in value over the last 12 months. With continued economic expansion, lower unemployment numbers, and more demand than supply of new homes, it is likely 2017 will be another very positive year for real estate appreciation.  Surely those who bought since 2011 are very grateful they did. 

Year Over Year Change in Price

If you, your friends, family, or colleagues have questions about financing their next home, I’d be honored to help. Please contact Josh Mettle at (855) 260-9932 or if you prefer, Contact Us here.

Copyright©2017 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. Fairway is not affiliated with any government agencies. Fairway is required to disclose the following license information. Alaska Mortgage Lender License No. AK2289; Arizona Mortgage Banker License No. 0904162; CA: Licensed by the Department of Business Oversight under the Consumer Finance Lenders Law; Loans made or arranged pursuant to a California Finance Lenders Law License #262571; Illinois Residential Mortgage Licensee No. MB. 0005475; Kansas Licensed Mortgage Company. KS License #MC.0001375; MA Mortgage Broker and Lender License #MC2289"; Minnesota: MN-MO- MN-MO-20183136. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. Section 47.206 (3) and (4); Mississippi Licensed Mortgage Company; Licensed by the New Hampshire Banking Department Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; OH MBA License #2289; Oregon Mortgage Lender License ML-3791; Rhode Island Licensed Broker & Lender; VA: NMLS ID # 2289; Washington Consumer Loan Company License No. CL-2289.