The Impact of Interest Rates on the Housing Market

Mortgage interest rates play a crucial role in determining the health and stability of the housing market

Mortgage interest rates play a crucial role in determining the health and stability of the housing market.

When interest rates are low, more people can afford to buy homes, which often leads to increased demand and a rise in home prices. On the other hand, when interest rates are high, borrowing becomes more expensive, making it harder for people to secure a mortgage and purchase a home. This can result in decreased demand for housing, lower home prices, and a slowdown in the market.

When mortgage interest rates change, a slew of housing market experts surface and make bold claims on how the market will unfold. They cite, as fact, that rising rates mean cooling sales while declining rates equate to rising sales. I've seen these claims for years, but I wonder if they are true.

Let's find out!

What They Would Have Us Believe

It's important to note that interest rates are influenced by a number of factors, including the state of the economy, inflation, and monetary policy. The Federal Reserve, for example, can adjust interest rates to help stabilize the economy during times of economic uncertainty. This means that interest rates can fluctuate rapidly, leading many to call for changes in demand in the housing market.

Experts claim that mortgage interest rates significantly impact the housing market and can make or break it, depending on the current interest rate environment. Low-interest rates can promote economic growth and stability, while high-interest rates can lead to decreased demand for housing and a slowdown in the market.

In order to provide the best guidance for home buyers and sellers, I have analyzed more than thirty years of interest rate trends and how they impacted the housing market each year. As with all housing metrics, the results were not what the experts led us to believe.


Investor Booklet

There are fundamental concepts that apply to the real estate investment industry that have also been found true consistently on the battlefield throughout history.

Prudent investors could strengthen their positions by taking a lesson from our military history and doctrine.

This brief paper, assembled by a West Point-educated US Army combat veteran, attempts to explain how investors can alter their strategic plans by using the same analytical techniques as would be applied by our modern warriors.

So here's the "logic" behind the claims of the link between mortgage interest rates and annual home sales. You have to admit; it certainly makes a lot of sense:

The impact of interest rates on the housing market can be seen in both the short-term and long-term. In the short-term, a sudden increase in interest rates can lead to a decrease in demand for homes as prospective buyers struggle to secure financing. This can cause home prices to drop and result in a slowdown in the market. In the long-term, high interest rates can impact the economy as a whole, leading to decreased consumer spending and a reduction in economic growth.

On the other hand, when interest rates are low, more people are able to afford to buy homes, leading to increased demand and a rise in home prices. Low interest rates also make it easier for existing homeowners to refinance their mortgages, which can help them lower their monthly payments and free up extra cash for spending. This, in turn, can stimulate the economy and promote growth.

But now, let's look at what actually happened over the past 33 years.

US Home Sales vs. Changing Mortgage Interest Rates

The following graph plots the annual change in mortgage interest rates in blue, and the annual percentage growth or decline of US home sales in red.

Graph shows how the change in mortgage interest rates impacted home sales for 32 years

When we put it all together, we find that home sales only fell in 45% of the years that mortgage interest rates rose, and home sales rose in just 73% of the years that mortgage interest rates fell. These are hardly the numbers to support a belief that home sales go as mortgage interest rates change. Here's what 33 years of home sales and mortgage data reveal:

  • Number of years where mortgage interest rates rose (11) (33% of all years)
  • Number of years where mortgage interest rates fell (22) (67% of all years)
  • Number of years where home sales rose (22) (67% of all years)
  • Number of years where home sales fell (11) (33% of all years)
  • Number of years where mortgage interest rates rose and home sales rose (6) (55% of increased-rate years)
  • Number of years where mortgage interest rates fell and home sales fell (6) (27% of decreased-rate years)
  • Number of years where mortgage interest rates rose and home sales fell (5) (45% of increased-rate years)
  • Number of years where mortgage interest rates fell and home sales rose (16) (73% of decreased-rate years)

Home sales actually fell in more than a quarter of the years when interest rates fell, and home sales rose in more than half of the years when mortgage interest rates rose. There obviously has to be more to the changes in the housing market than just mortgage interest rates, right?

Facts, Not Hype

If you want to know what's going on in housing, to see and hear the data explained, to ignore the hype that's so prevalent online, I encourage you to join the growing list of subscribers to the Joe Manausa Real Estate YouTube Channel. We work hard to deliver the facts as they are published by major housing market monitoring sites such as Zillow, FRED, Black Knight, US Census Bureau, Redfin, and others.

By casting a wide net across the US housing market, we can better understand what is going on and what is likely to occur in the coming months and years. We focus on the data which paints a fair picture of the housing market. You might wonder why there is so much hype online today. Neil Bogart, the founder of Casablanca Records, once opined, "If you hype something and it succeeds, you're a genius - it wasn't a hype. If you hype it and it fails, then it was just a hype."

Unfortunately, hype sells as well today as it did 50 years ago, so we should expect more hype for the time being. Solid research, combined with on-the-ground experience, will help us continue producing the hype-defying content our customers and followers need when deciding about their housing market needs.

We might not always be right in our forecasts, but we will endeavor to deliver the information you need to make informed decisions when you decide to move. Don't let the hypesters lead you astray, follow the data; it is usually fairly straightforward.

Foreclosures! Ignore The Clickbait - Here's What's Happening
Our examination of mortgage delinquencies, foreclosure rates, and homeowner equity reveals a situation far from the catastrophic forecasts often presented online.
Hey Politicians We Need More Houses!!!
We need more houses! As our cities grow, so does the demand for housing. But the supply? It's not keeping up
Zillow Housing Market Update
Examining the historical context of home availability to interpreting the implications of rental rate adjustments, we provide insights essential for making informed decisions in today's Zillow real estate landscape.
Americans Can Barely Afford Homes - Just How Bad Is It?
People have asked: “Is home affordability really all that bad?” Give me five minutes, and you’ll have the answer and the data that supports it.
Can Builders Save The Housing Market?
Home Affordability Crisis: Local Solutions ~ National Issue: Delving deep into current US homebuilder production. Enough? Short? A less optimistic real estate market outlook.
The Unaffordable Housing Paradox: Why Homes Are Out of Reach
The affordable housing shortage has this solution. It requires changes in urban planning that pay attention to housing costs and housing economics.
Why Foreclosures 2023 Is Not The News Story They Told You It Would Be
Even as more videos mount clickbait based on foreclosures coming, the data invalidates them right away.
Are Home Prices Heading for a Crash?
The US housing market has been a frequent topic in the news, but a crucial factor is being ignored when determining the direction of US home prices.
The Fallacy of Affordable Housing: The Need for More Homes
The idea of affordable housing is noble, but the reality is that building new low-end homes is not the solution to the housing crisis we're facing.
Foreclosure Crisis: What the Data Tells Us
Are you curious about what's really going on with foreclosures and loans in forbearance? Worried about the next housing crash?
Are you a NIMBY or a YIMBY?
Two terms have gained prominence over the past few years. NIMBY (Not In My Back Yard) and YIMBY (Yes, In My Back Yard) are labels that classify housing market activists into one of two camps
How Often Do Home Prices Fall?
Are home prices falling? Will house prices fall soon? Home prices are soaring, buyers are having to pay above most sellers' asking prices, and the housing market feels just like a feeding frenzy during Shark Week on the Discovery Channel.
Home Affordability Falls To 40-Year Low!
It's been over forty years since homes were more expensive than today when you factor in inflation, home prices, and mortgage interest rates.
The Surprising Way Interest Rates Move The Market
When mortgage interest rates change, housing market experts surface and make bold claims on how the market will unfold. They are usually wrong!
Real Story Behind Home Prices: Fact Versus Fiction
When it comes to buying a home, many misconceptions about the housing market can cause confusion and uncertainty for potential homebuyers. One of the most persistent myths is that home prices fall frequently, but is this true?
Biden Rent Control Plan
The White House announced an executive action that Biden says is designed to "protect renters and promote rental affordability," but I cannot imagine a worse response from our Commander In Chief to confront the nation's housing and rental affordability crisis
Big Redfin Report: First Time Redfin Saw THIS Since 2012!
Recent housing market data from Redfin, the large online real estate portal, shows that something occurred over the past two months that has not happened in the past ten years.
Will Assumable Mortgages Save Housing?
Will assumable mortgages save housing? Home affordability is becoming one of the hottest topics in the economy, but I was recently asked if assumable mortgages might bring some relief to homebuyers. This video shares what I think about how mortgage assumption will impact housing.
Why Vacancy Rates Are the Hidden Indicator of Housing Market Health
Imagine shopping for a new home—whether you're aiming to buy or rent—and finding that every other house on the block is empty. Conversely, imagine a tight market where you can't even find a rental property, let alone purchase a home.
When Will Home Prices Fall?
Are Home Values About To Crash AGAIN? Now that we've seen about three years' worth of skyrocketing home prices, prudent buyers with memories are asking when home prices are going to start falling again.
Renter Nation Says Goodbye To The American Dream!
It's the beginning of a generational shift in the housing market that will greatly reduce homeownership and push the US towards becoming a renter nation, one in which Wall Street is in control of both home prices and rents
Mortgage PITI Explained: Why Mortgage Payments Are Soaring!
Mortgage PITI (P.I.T.I.) stands for Principal, Interest, Taxes, and Insurance, and we dissect them to discover why mortgage payments are soaring
The Truth About Foreclosures - Mortgage Pipeline Update
The best way to start to analyze the potential for mass foreclosures is to break down the current mortgage pipeline to observe forming trends.
Will NINJA Loans Bring Down The Housing Market?
Housing Crash Coming? If you remember back to the housing bubble, we saw the growth of "NINJA" loans, as they were a segment of the home sales explosion.
Google Knows. The Surprising Real Estate Market Forecast You Won't Believe!
Is it possible to forecast home sales in the US housing market with a search on Google? I had this thought about Google and a google housing market forecast as I was reexamining our search engine optimization efforts.
Economic Outlook For The Housing Market
Joe Manausa gives an update on the economic outlook for Tallahassee and the US housing market. Includes housing market forecast, housing market activity, and new construction analysis, and reveals how Tallahassee compares with the overall US housing market.
Will New Construction Bottleneck Cause A New Housing Bubble?
Are you concerned that the bottleneck of builder homes under construction will cause a new housing bubble as they are finally completed?
6 Housing Market Rumors Debunked (1 Confirmed)
7 different housing market rumors are perpetuated as “FACT” in various forms of "hype." Discussion of this "housing market news" has been ongoing for years, so today, I want to put them all to rest.
Who To Blame For Soaring Home Prices
There is a huge shortage of homes in the US, and there is only one culprit to blame, and I’m going to tell you who it is!
What You Don't Know About Home Prices!
Home prices are gaining traction as topics in both the mainstream media and social media, but there are three common misconceptions about the change in house prices that are unanimously reported as unquestionably true.
Is The Supply Of Homes For Sale Finally Rising?
Is The Supply Of Homes For Sale Finally Rising? Is the US housing market heading for a crash? Will home prices fall? Follow the metrics that clearly show what to expect from home prices and the supply of homes for sale in 2022 and beyond.
Zillow Exposes Mainstream Media On Home Prices
Zillow serves up the data that exposes the poor reporting of the mainstream media on Zillow home prices and that conditions are not what they seem.
House Prices - Inflation Adjusted Home Prices
Just How High Are Today's House Prices? The price of houses in the US has risen to a toxic level, and many are wondering how they will be able to afford to live in their local communities
Podcast: Housing Myths Dispelled
Home Building Hero David Belman and Joe Manausa discuss many of the "myths" that have been published in the media about the housing market.
USA Today Misleads Readers About Home Prices
USA Today Misleads Readers About Home Prices - Median Home Price: The USA Today Network has been misleading readers, using the median home price change suggesting that houses are getting cheaper and a real estate crash is upon us. Is this poor journalism or is there something more to it?
Are We Overbuilding Again?
I've been asked recently for my opinion on the number of homes being built in the US. Specifically, people are wondering if the ghost of 2006 has come back to bring more homes to the market than what can be consumed?
Housing - Do You Follow Your Gut (Or Analytics) In Housing?
I think the signs in the housing market are loud and clear, yet most real estate reports I read or view are missing the most critical factor in housing today.
Home Ownership Is Radically Different For Millennials
This is a simple millennial housing case study that will clearly show that the millennials will face a housing market like no other generation going back to post-World War II.

There are a lot of people who endorse Joe for the job of selling your home, including Preston Scott (host of Tallahassee's top daily "Audio Magazine," as well as the thousands of happy customers Joe has helped in the past. Listen why!


#1 By EVA ARMSTRONG at 2/7/2023 7:52 AM

Interesting data - so when a buyer says that the increase in mortgage rates is causing a reduction in homes sales and thus home prices to drop to justify the really low offer they want to make, what is the clearest response?

#2 By Joe Manausa, MBA at 3/21/2023 5:07 AM

I like to show the numbers Eva. If I'm confident in the value of a home, I ask the buyer why they think it will sell for less. There's such a low number of homes for sale, it's still a seller's market at most price points. It's important for buyers to know that so they can get the best deal possible (and still get the deal).

Post a Comment

(850) 378-5727