Could Rising Interest Rates Affect Home Values?

The U.S. Federal Reserve is tightening its monetary policy, as the 30-year fixed mortgage interest rate is now at 4.5 percent. In the years since the housing crisis, the rate was set below 4 percent.

Rising interest rates may cause homebuyers to speed up their purchasing process. For homeowners, the effects of the rate hike on home values are still unclear, Curbed reports. Sam Khater, deputy chief economist at CoreLogic anticipates that mortgage rates won't do much to affect home values, "The relationship is almost zero. That’s shocking to most people. Even real estate people and finance people, they don’t understand that.”

CoreLogic built a model to project what a typical monthly mortgage payment would be if the rates rose by 0.85 percentage points over the next year, which it calculated by averaging multiple rate increase forecasts ... The model assumes a 2.6 percent rise in real home prices. Taking this into account, the typical monthly mortgage payment would rise from $804 to $910, a 13.3 percent increase. However, when the projection is adjusted for inflation, it’s still 36.4 percent below the all-time high of $1,263 set in June 2006.

Read more