A new study, released Wednesday morning by researchers at Columbia Business School in New York, argues that a recent rise in mortgage rates has had a significant negative impact on home prices — reducing prices by 10 percent. But we’re not talking about mortgage rates in the sense of the actual rate; we’re talking about rates relative to the spread with 10-year Treasuries, which have gapped out this year to levels rarely seen before. The research, authored by Christopher Mayer and Paul Milstein, professor of real estate and senior vice dean at Columbia, suggests that continued pressure in the mortgage market and the likelihood of a longer-term upward trend in mortgage rates will keep home prices falling nationwide. “The problems in the mortgage market have put the nation’s housing in a downward spiral that will be hard to break,” Mayer said in a press statement. Examining house price data from 19 metropolitan areas in the U.S., Mayer determined the relative cost of owning a home in today’s distressed mortgage market, and compared this ratio to where prices would be if the mortgage market were behaving as it has over the last few decades. His analysis found that today’s higher mortgage rates have raised the full cost of home ownership by between 10 and 20 percent. Mayer’s model suggests that housing markets across the U.S. will continue to decline as mortgage rates increase, including “bubble” markets such as Miami, Tampa and Phoenix in particular, where prices are likely to drop by at least another 10 to 15 percent from their current levels. He also suggests that many coastal markets such as San Francisco, Boston and New York, where house prices have corrected to where they should be based on economic fundamentals, are likely to keep falling due to deteriorating mortgage markets and broader economic conditions. Even more stable markets in Texas and the Carolinas that were not as affected by the subprime crisis or worsening economic conditions as other parts of the country, are still likely to experience falling prices due to increasing mortgage rates, Mayer concluded. When interest rates are low — as they are today — Mayer’s research suggests that house prices are very sensitive to fluctuations in mortgage rates. For the last 20 years, mortgage rates have averaged at 1.6 percent above the 10-year Treasury rate, while in today’s distressed market these rates exceed the 10-year Treasury rate by more than 2.4 percent. Climbing mortgage rates relative to Treasuries make it more difficult for homeowners with subprime loans to refinance into lower rates, resulting in a greater number of foreclosures, and they discourage potential new homebuyers from entering the housing market, lowering demand. Both of these effects put further downward pressure on house prices, he said. For more information, click here.

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