Why and What Happens When Interest Rates Rise?

Are you worried that the recent increases in interest rates will stall the housing recovery? Relax. According to Freddie Mac’s latest U.S. Economic and Housing Market Outlook interest rates have a long way to climb before we’d see a substantial reduction in demand for home purchases.

From the report…

To be sure, low mortgage rates have helped fuel the recent good news in housing, where house prices have been increasing across most of the country. While it’s true that rising mortgage rates and increasing house prices work together to drive up the cost of buying a home, mortgage rates remain near their 60-year historical lows helping to keep homebuyer affordability strong. At today’s house prices and income levels, mortgage rates would have to be nearly 7 percent before the U.S. median priced home would be unaffordable to a family making the median income in most parts of the country. So while rising interest rates will reduce housing demand, rates would have to increase considerably more before the reduction in demand for home purchases would be substantial across the country.

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