eli5 What happens to house prices when bank interest rates go up?


I’m asking as a seller. What is more likely: a higher or lower result?

In: 4

Honestly? Nothing. The big problem with housing costs is that anything turn-key, move in ready is being bought up by investors to turn into rental properties, and most fixer-uppers are being bought by flippers who then sell to investors to turn into rental properties. And a lot of these investors pay *cash* and aren’t taking out mortgages, so the interest rates don’t matter to them.

In a healthy market, prices go down as fewer people can afford houses. In markets where you have cash buyers lined up to buy houses right away and a shortage of houses nothing happens.

Less people get approved for mortgages or less people apply as they are dissuaded by the high interest prices. This would usually mean house prices go lower or crash, however this isn’t always the case.

Prices tend to be flatter when the cost of borrowing (i.e., mortgage rates) go up.

Prices don’t tend to drop. The US 2008 housing bubble did cause price drops, but that was due to a huge number of bad loans, and not the direct result of mortgage rates. High supply, low demand drove prices down. That hardly ever happens on a large scale (see the second chart at https://dqydj.com/historical-home-prices/)

Right now in the US, it seems we’re still in a low supply, high demand period, which pushes prices up, and the rising mortgage rates are intended to counteract that. That’s apparently having an effect because we’ve had three months of lowered sales.

What do those trends mean for the house you’re selling? Nothing. The local economy, supply, and demand are more important than national trends. What are you local housing prices doing? Are homes staying on the market for long or being bought up ASAP?

The housing market, like any other market, is based on supply and demand. If there is more demand than supply, the price goes up. If there’s more supply than demand, prices go down.

Even small changes in interest rates can have major effects on the cost to buy a home. For example – interest rates are now over 5%. A 4.25% loan will cost ~600 less per month and over 200k less over the course of the loan than a 5.25% loan.

This means fewer people will be buying houses than they otherwise might, meaning the demand will be weaker than it otherwise might be.

Now – how does this translate to prices? It’s complicated. There is always housing demand, and the supply does not increase that rapidly. The best guess is that there will be moderate price increases, as opposed to the ridiculous ones we’ve seen over the last few years, which were driven by insane demand as well as record low rates