What do rising mortgage rates mean for housing?

Today’s HousingWire Daily episode features an exclusive interview with First American’s Chief Economist Mark Fleming. In this episode, Fleming discusses First American’s latest Real House Price Index data and what a rising mortgage rate environment could mean for the housing market.

Here is a small preview of the interview with Fleming on what mortgage rates mean for housing. The transcript below has been lightly edited for length and clarity:

HousingWire: As mortgage rates continued to hover near historic lows, we saw a significant uptick in homebuyer demand in 2020. Looking ahead, what type of response can we expect in the market if mortgage rates were to remain low or climb?

Mark Fleming: At the moment, low mortgage rates and the resulting house-buying power is phenomenal because of interest rates. All the potential first-time homebuyers, who are largely Millennials aging into their home-buying years, are not going to change this year. In fact, home-buying demand might be even stronger than it has been in recent years. All of that purchasing power is great news as it means the demand side of the market, driven by low rates and the demographics of demand amongst Millennials, is not going anywhere or changing in 2021. If rates rise from 2.7% to 2.9%, it’s still below 3%, and that is way below the normal historical average, which is more like 6% or 7%. I can’t see a world where we can fairly say that rates are high or will be higher again this year if we have any historical perspective. The word high does not belong next to the word rates this year.

HousingWire: Is there anything else that you’d like to add today?

Mark Fleming: When it comes to rising rate environments, we ask, “Well, what does it mean for housing markets?” What we basically discovered is that when you look at the pace of home sales, it’s a mixed bag of results. Sometimes rising rates actually reduce sales, and sometimes sales continue to grow in terms of their pace during rising-rate environments. Additionally, sometimes rates are rising because economic conditions are improving, so that’s generally good for the housing market as house prices are even more clear cut. Practically all the time during rising-rate environments, house prices continue to go up or they don’t fall; we call that downside sticky. This is because all of those existing homeowners tend to not want to list their homes for sale, and the housing market doesn’t collapse with the exception of the housing bubble. Most of the time, rising rate environments don’t necessarily mean declining house prices and home sales volumes, which is what we could probably experience this year.

HousingWire Daily examines the most compelling articles reported from the HousingWire newsroom. Each afternoon, we provide our listeners with a deeper look into the stories coming across our newsroom that are helping Move Markets Forward. Hosted by the HW team and produced by Alcynna Lloyd and Victoria Wickham.