How Do Rising Interest Rates Affect Real Estate Prices?

Interest rates do have an impact on the bond market. They do not affect real estate "prices." Interest rates and bond prices have an inverse relationship; so when one goes up, the other goes down.

It's a common belief in real estate that home prices are correlated to interest rates. Some think if mortgage rates rise, prices of homes for sale must fall because otherwise those homes will become less affordable. This "belief" is mostly not true! Mortgage rates tend to rise because, in a relative sense, the economy is doing well, incomes are increasing, people can afford more and therefore willing to take out a larger mortgage. Intuitively, you'd think that if interest rates go up, of course, house prices go down. But they don't. The better indicator and bigger impact of home prices is the economy, not interest rates. Yes, rising interest rates can certainly have an impact on affordability and qualifications of a home loan.


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