The Federal Reserve put lending rates up another tick today, 25 basis points, (a quarter of a percent), and mortgage rates, which are based on the Federal Reserve rates, will surely follow suit. So does that have you thinking that rising mortgage rates on Hudson Valley properties will cause a slowdown in purchases which would, in turn, lead to a fall in house values?
Think again, says Freddie Mac’s recent Insight Report titled, “Nowhere to go but up.” The report concludes otherwise.
1. The decision to buy a new home is typically linked to owner’s decision to sell their current home.
2. 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.
3. There is an associated drop in the supply of homes from the link between the selling and buying decisions.
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 proof, 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%.
Global Property Systems says:
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.