House Prices and Mortgage Rates

Several people have asked me about a comment from Fannie Mae chief economist Doug Duncan as quoted in a NY Times article a couple of weeks ago: In a Shift, Interest Rates Are Rising

“There’s no strong correlation between interest rates and home prices,” said Douglas Duncan, chief economist at Fannie Mae.

Duncan is correct.

However, a key difference now compared to earlier periods, is that there is more investor buying. And investors will compare their returns on different investments – and rising rates will probably slow investor demand for real estate, even if they are all cash buyers.   But, in general, I think rising rates might slow price increases but not lead to a decline in prices (we might see some seasonal declines).

 

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