Skip to main content
mortgage rates? home prices? home sales? spring predictions? To help predict what is to come, let’s look at what has happened historically in rising mortgage rate environments.
Mortgage Rates rising this year from 3.11% in January to 4.67% in March. https://freddiemac.gcs-web.com/node/24976/pdf (3.89% previous week)  http://www.freddiemac.com/pmms/

Mortgage rates started out at 3.11% for the average 30-year,fixed at the beginning of the year, and they have just steadily climbed since then – up to 4.67%.

Mortgage rates are likely to continue to move higher throughout the balance of 2022, although the pace of rate increases is likely to moderate.. Much of the increase in rates in early 2022 is in anticipation of what will happen later this year, especially with Federal Reserve interest rate policy. Len Kiefer, Deputy Chief Economist, Freddie Mac

Rates are projected to continue rising, but at a more moderate pace, because the Fed has risen their rate and mortgage rates tend to follow.

So how does this affect home prices? Let’s take a look at the historical impact of rising rates on home prices when mortgage rates rose by more than a percentage point.

So this goes all the way back to October of 1993, so almost 30 years. And it shows you that there was you know, an average of about 8% home price appreciation as mortgage rates are rising by more than a percentage point. So you know, overall what we can see is that you know, rising rates have not had a negative impact on home prices. http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

Looking back to October of 1993 (about 30 years), we can see an average of about 8% home price appreciation as mortgage rates are rising by more than a percentage point. So, rising rates have not had a negative impact on home prices.

So how do rising mortgage rates affect home sales?

So let’s take a look at this addition to the same data, and to add some home sales for this same period of time, going all the way back to 1993. Now what we can see here is there was an average of a decrease of 11% in home sales as prices were rising. We know as rates rise that that tends to sometimes reduce buyer activity. It prices some people out of the market.. http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

Looking at the same data for the same period of time, we can see an average decrease of 11% in home sales as prices were rising. As rates rise, it can tend to reduce buyer activity – pricing some people out of the market.

October ‘93 to December of ‘94. Mortgage rates increase by 2.38% to a final rate of 9.2%. So let’s be super clear that we’re not looking at a two and a half percent increase in mortgage rates right now. We’re not projected to. And we’re certainly not projected, according to the experts, to get up to 9.2% increase, or 9.2% mortgage rate. So very, very different environment than what we’re talking about. . http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

It is important to note that first line (October 1993 to December 1994) where mortgage rates rose 2.38% to a final rate of 9.2%. We are NOT looking at a 2.5% increase in mortgage rates right now. That kind of increase is not in the projections. We are in a very, very different environment than we were back then. We are most likely looking at a 1.5% increase.

So let’s look at the same data and what you can see overall. There’s a little bit of orange. There’s a little bit of black, meaning home sales as mortgage rates are rising in these environments, really negligible impact. So maybe down by 2%, maybe up by 2%. Roughly that 2% impact on home sales as mortgage rates are rising in a similar environment. And of course the outlier is 2005, 2006 which was the lead up to the housing crisis and home sales dropped by 14%. So what we can see here is that when you factor this data out, we start to see that rising mortgage rates don’t have a huge impact on home sales. So you know, why is that? I think one of the big things we have to look at is what is available for sale. We have to look at the inventory component. Because today, what we are seeing is drastically low inventory. . http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

In rising mortgage rate environments, there is an overall 2% impact on home sales – a negligible impact – where 2005 & 2006 are the outliers leading up to the housing crisis.

Overall, rising mortgage rates don’t have a huge impact on home sales. Why? Because you have to consider the inventory component. Today, we are seeing drastically low inventory – lower than it was in January of 2021, which was a historical low. Home prices are projected to continue rising, because there just aren’t enough homes for sale. Supply and demand are what drives home price appreciation. So, when you see those headlines saying home sales are softening, it’s not because of rising mortgage rates. It’s because there aren’t enough homes to buy.

When we look at months inventory, and we only have it going back to 2003, 2004 for this series of data. But we have five months of inventory, four and a half months, 4.8 months, you know, we had a very, very different inventory level than what we have today. So when we think about you know, those environments where it looks like oh, 506, you know, 2012, 2013, where there was a little bit of a negative impact on sales. Inventory was very different. . http://www.freddiemac.com/research/insight/20180223_increasing_mortgage_rates.page

When we look at months inventory, historically we had between 4.5 and 5 months inventory on hand – a very, very different inventory level than what we have today.

While higher short-term interest rates will push up mortgage rates, I expect some of this impact to be mitigated eventually through lower inflation... Thus, I expect the 30-year fixed mortgage rate to continue to rise, although we aren’t likely to see the big jumps that occurred over the past few weeks. Nadia Evangelou, Director of Forecasting, NAR

Inflation is driving this increase in mortgage rates, and we can expect it to continue to rise, but it won’t be at as quite a rapid pace as what we’ve seen over the past few weeks.

History suggests that when rates rise, there is an initial bump in home prices as many move quickly to buy a home before rates increase further. But after that period, home prices slow... analysis shows that a 1% increase in mortgage rates results in home price appreciation that is 4 percentage points lower. For instance, a 1% increase in mortgage rates would change home price growth from 11% to 7%. Freddie Mac

Home price appreciation will slow, and mortgage rates will slow some of the frenzy. But, we’re not talking about depreciation. We’re talking about deceleration – appreciation at a more moderate rate.

With rates rising and expected to rise through 2023, it makes sense to obtain a purchase or refinance mortgage if you are in good standing. Len Kiefer, Deputy Chief Economist, Freddie Mac

We hope that all helps explain how the rising mortgage rate environment will affect the other factors in the market, so let’s move on to the forecasts for the spring housing market.

We keep watching for it... but there are absolutely no signs of a market slowdown anywhere in the data. If anything, we're seeing the market continue to heat up. Altos Research

We are in a very, very busy market.

https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index

Here is the NAR (National Association of Realtors®) Buyer Traffic Map – strong activity overall.

https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index

Then, we see very, weak seller traffic overall. So, strong buyer demand combined with the lack of sellers keeps that upward pressure on prices.

, active listings increased in this country for the first time in six months. If you go back to the fall of last year, around September we started to kind of fall down in active listings, all those being consumed by the buyers in the market. And we’re starting to see a tick up. Very little, but, but nonetheless a tick up. [0:13:47] And the interesting thing is if you look at where we’re at March, 382,000 active listings in the country according to realtor.com. Remember, they factor out all the pending listings and things like that. These are just actives. And go back to March of last year, about 471 active listings, just shy of 100,000 active listings short this March as compared to last year. So we need more listings. We know that across the country. But all of this leading to sort of a bias towards the upside, meaning forecasters that are looking at the market are saying you know what? We thought it was going to be this amount of activity. But we see it being a little bit more. https://www.realtor.com/research/data/

However, we did see increased active listings in March.

Now, more industry insiders are throwing out their previous forecasts and replacing them with more bullish short-term outlooks. Indeed, some experts say the 2022 spring housing market might go down as one of the most competitive on record. Lance Lambert, Editorial Director, Fortune
a good synopsis of pending home sales over the last, several months. Pending home sales have dropped. And I’m going to make the argument that pending home sales are down not because there’s a lack of demand in the market. https://www.nar.realtor/newsroom/pending-home-sales-dwindle-4-1-in-February https://www.nar.realtor/blogs/economists-outlook/pending-home-sales-weaken-4-1-in-february-2022

Pending home sales have dropped, overall – not because there’s a lack of demand in the market, but because we can’t sell what we don’t have. Nonetheless, we seem to be in a healthy market.

We’re ahead in showings and activity, those scheduling appointments to see homes, and we were well ahead before the pandemic and well ahead during the pandemic. So the lack of existing home sales is not because there’s not demand in the market. There’s very much a strong, strong demand in the market. It’s because of the lack of available homes. All of this, keeping that upward pressure on prices.. https://www.showingtime.com/blog/february-2022-showing-index-results/

We’re ahead in showings and activity, indicating, again, strong demand.

This is the latest look from CoreLogic on price acceleration. You know, as we came through last year we said okay, prices seem to have peaked if not, you know, plateaued. And what we’re seeing through November, December, now January numbers ratcheting up slightly in the amount of appreciation year over year. So a very, very competitive market.https://www.corelogic.com/intelligence/u-s-home-price-insights/

Price acceleration is also holding steady, indicating a very competitive market.

Last fall we observed that home prices, although continuing to rise quite sharply, had begun to decelerate. Even that modest deceleration was on pause in January. The 19.2% year-over-year change for January was the fourth-largest reading in 35 years of history. Craig J. Lazzara, Managing Director, S&P DJI

And we are still ahead of historical appreciation. Overall, these figures look to a strong spring market.

With all the uncertainty out there, let’s take a quick glance at 5 graphs that break down the most common concerns.

First one, active listings. Our new listings are greater than active listings. This does a great job. This graphic here shows active listings as compared to new listings going back to August of 2021. So let me break this down for you. The blue are active listings each month, and the green are new listings that are taken during the month. Well, you see, all through the fall and coming into the new year, active listings outpace the new listings until March, where new listings actually outpace the active listings. What does that do? That shows a great sort of picture of what’s happening in real estate today. As soon as something comes on the market, it sells. It sells right away. And you can see that here in the March look at new listings outpacing the active listings in the market. https://www.realtor.com/research/data/

First, active listings as compared to new listings going back to August of 2021. The light blue bars represent active listings each month, and the dark blue bars represent new listings that are taken during the month. Active listings outpace new listings until March, where new listings actually outpace the active listings. This means as soon as something comes on the market, it sells.

the single-family housing units completed. And this tells the story of why it’s so hard to find a home right now. Why prices have risen the way they’ve risen. And the simple answer is right there. For 14 straight years, we’ve been below the 50-year average in builds in this country, going all the way back to the 70s. And what I always tell people is literally back in the 70s and 80s, there were more homes completed in this country than there have been in the last 14 years. The last decade, really. All of that coming out of fallout of the housing crisis in 2008. Builders being hit extremely hard, and having to build back slowly their capacity, their ability to bring new builds to market. But that no doubt, the lack of available homes coming to market, has constricted supply. A lot of people want to buy, driving the price up, making it hard to find a home. www.census.gov/construction/nrc/xls/co_cust.xls

Second, the single-family housing units completed tells the story of why it’s so hard to find a home right now – why prices have risen the way they’ve risen. And the simple answer is that for 14 straight years, we’ve been below the 50-year average in new construction, due to the fallout of the housing crisis in 2008. Builders were hit extremely hard, and are building back their capacity – their ability to bring new builds to market. This has constricted supply.

The other issue I think is going to be a big concern for a lot of consumers this spring is inflation. This is a graphic you’ve probably seen before. This is home ownership as a hedge against inflation, and that’s what we want to be able to show people literally, when you’re in an inflationary economy, you want to be invested in hard assets that outperform inflation. And this is going back all the way to the 70s. The blue bar there being the inflation rate. The green bar being home price appreciation. And you see most decades, home price appreciation has outperformed inflation. https://cdn.nar.realtor/sites/default/files/documents/2021-11-12-residential-economic-issues-and-trends-lawrence-yun-presentation-slides-11-12-2021.pdf https://www.bls.gov/news.release/archives/cpi_01132021.pdf https://www.corelogic.com/intelligence/find-stories/home-prices-topple-expectations-surging-at-the-end-of-2020/

Third, we look at home ownership as a hedge against inflation. When you’re in an inflationary economy, you want to be invested in hard assets that outperform inflation. The light blue represents the inflation rate, and the dark blue represents home price appreciation. Historically, home price appreciation has outperformed inflation (with the exception of the housing crisis).

https://pulsenomics.com/surveys/#home-price-expectations

Fourth, we look at the home price expectation survey – a survey of 100 economists, real estate professionals, and market investor professionals determining what is going to happen with home prices. $96,000 in potential growth in household wealth over the next five years based solely on increased home equity if you purchased an average priced home (about $360,000).

So, bringing that to people that are wondering, is this the top of the market? Will homes lose value? Will help them see what experts are saying about home price appreciation. You know, all the folks that are waiting on the sideline right now for home prices to go down, this is a look at experts. The experts that we follow. There are seven experts here, on the average home price appreciation being 6.7%. There’s nobody literally right now forecasting prices to go down. You know, one side, Zelman saying 3%. CoreLogic saying 9.6%. And you see everywhere in between there. But no doubt this competitive spring market, this competitive year, we will see home price appreciation. I think they’ll raise this appreciation number as we go throughout the year. But no doubt we’re going to see appreciation in homes this year well above what we’ve seen in historical years. https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q1-2022-us-economic-outlook-01-27-2022.pdf https://www.fanniemae.com/research-and-insights/forecast http://www.freddiemac.com/research/forecast/20220121_quarterly_economic_forecast.page https://pulsenomics.com/surveys/#home-price-expectations https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/

Finally, a look at home price appreciation. Among the seven experts, the average home price appreciation is 6.7%. Not one is forecasting prices to go down.

Let’s Talk

You’ve got questions and we can’t wait to answer them.

We use cookies and tracking technology in connection with your activities on our website. By viewing and using our website, you consent to our use of cookies and tracking technology in accordance with our Privacy Policy.