When South And West Palm Beach Mortgage Rates Rise, Do Prices Fall, Too?

Most people know the answer to a question like, “Will home sales suffer if mortgage rates go up?” The answer is, “DUH! Of course—it’s sure to cut down on sales.” Even though that’s hard to argue with, the obvious cause-and-effect connection can be seriously misleading. It can even lead to an expensive mistake.

South And West Palm Beach Mortgage Rate Rise Can Lead to a False Conclusion

Everyone acknowledges that the effect of rising South And West Palm Beach mortgage rates will be to discourage potential buyers—especially for the 42% of U.S. buyers who depend on a home loan. When that payment goes up a lot, it happens that much more. Duh.

Yet for homeowners mulling over the idea of adding their own property to the South And West Palm Beach listings, that particular ‘duh’ can lead to a secondary conclusion that could be misplaced—namely, “If fewer buyers can afford a given house, the price that house can sell for will go down.” Instead of another “DUH, of course!” the answer to that one turns out to be “Not necessarily.”

That’s the finding published by government-sponsored Freddie Mac in its landmark Insight Report, “Nowhere to go but up? How increasing mortgage rates could affect housing.” It’s a long-winded collection of sales statistics tracking mortgage rate rises since 1990. The rate hikes caused sales levels to fall, of course—but not the prices paid for homes! The reason behind this seemingly perplexing fact is simple. In Freddie’s words:

   “While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions.”

Sellers are fewer when their purchase of a new home would result in a more costly mortgage. Since a lower supply increases prices, presto!—like magic, the result is a graph that reveals what happened historically to home prices “the last six times mortgage rates rose:” +3%. +2%; +13%; +13%; +7%; and +11%!

Get In Touch With Your Trusted Mortgage Specialist

The historical record points to a price impact on potential South And West Palm Beach sellers that is anything but dire. For would-be sellers, a first reaction to news of South And West Palm Beach mortgage rate increases may be worth a second thought. I’ll stand by to discuss what the current South And West Palm Beach market is showing. Why not give me a call at (561) 316-6800?