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Mortgage Rates Increase and Home Prices Decrease

Updated: Jan 22, 2021

· The big question on the minds of many buyers and sellers: When mortgage rates rise again—as they ultimately will—are home prices going to fall?

· Everyday we get this question – should I just wait until home prices fall?

· Most real estate experts agree it's not likely that prices will fall dramatically unless something unprecedented happens – but the pandemic was unprecedented the opposite happened of what was predicted in the housing market.

· If rates were higher, the prices wouldn’t increase as much, True there wouldn’t be as many people who could buy the homes. ... Houses would stay on the market longer, and [sellers] would be more willing to negotiate. But we shouldn’t expect to see a huge dive in home prices

· Rising rates may push many would-be buyers out of the market. If rates go up by even a half-point, many people may no longer be able to buy, That especially hurts first-time buyers, who usually have smaller tighter budgets.

· The immediate effect would be buyers with lower credit scores and incomes, and smaller down payments would be disqualified from getting a mortgage, The result would be a decline in demand and fewer sales.

· If those monthly mortgage payments are suddenly too high for a large swath of buyers, prices would most likely flatten out in some markets across the US, but the desirability of our Central Oregon makes it slower to respond to this situation.

· The Feds have been telling us not to expect rates to go up by much for at least another year.

· A lot is going to depend on how the economy goes, If the economy recovers, that will push mortgage rates higher.

Freddie Mac's deputy chief economist Len Kiefer recently said, "That's the big question. Are rates going to keep falling? Are they going to rise?" "The honest answer is, we don't know. Economists have not had much luck in forecasting" where rates will go.”

The problem is, 2020 hasn't been a typical year. There's never been a pandemic in our lifetimes, and this recession is driven by a virus, not a housing bubble or oil crisis or other economic trouble. And while mortgage rates are influenced by the direction of the Fed's short-term interest rates, it's not uncommon for them to do their own thing.

Conclusion: We do not see an end to the demand – there may be a slight softening through our coming winter which is historically normal for Central Oregon but we most likely will not see a great down turn – people want to move here. With this demand prices will continue to increase until buyers will not pay the price and then they will level out.


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