🏡 Mortgage Rates Are Soaring! Will They Crash The Housing Market?
After a lot of analysis, we strongly believe that home prices will keep on rising.
You’ve read the news: mortgage rates shot up by a whopping 51 basis points in just 4 weeks - from 3.05% to 3.56%!
You may think that the rise in rates will reduce demand and crash the housing market, right?
Surprising: Skyrocketing Mortgage Rates Have Always Coincided With Home Price Increases!
In the last 45 years, every time mortgage rates have increased by 100 basis points or more, home prices have also increased.
Moreover: Home Prices Increase Faster When Mortgage Rates Rise!
Home prices increase at a faster annualized rate during months where mortgage rates rise.
Why does this happen?
1. Higher Rates = Lower Inventory
In the last 30 years, most rate hikes have lowered existing home inventory.
Why? Because homeowners who bought their home at a low mortgage rate don’t like selling their homes in a higher rate environment, unless they absolutely need to.
2. Higher Rates = Higher Inflation = Cheaper Mortgages
US inflation is at a 40-year high. True inflation numbers are even higher. On top of that, inflation reduces the cost of future mortgage payments!
Thus, high inflation ends up increasing your house buying power.
In fact, real mortgage rates (mortgage rates corrected for inflation) are negative right now!
3. Mortgage Rates Rise When Economic Growth Is Strong
Mortgage rates usually rise during periods of strong economic growth.
A rising economy leads to an increase in wages and prices, i.e. inflation
The Federal Reserve implements policies to counter inflation
People generally earn more in a rising economy. Thus, demand for homes stays high even when mortgage rates rise.
Sure enough, the US economy saw strong growth in 2021, and is forecasted to grow faster than average in 2022.
To sum up, expect home prices to keep on rising in 2022.
If you are interested in investing in real assets, set up a call with me.