A Historical Look at Rapidly Rising Interest Rates and the Effect on the Housing Market

In recent weeks, there has been conflicting opinions in the media as to whether the recent increases in mortgage interest rates will curb the housing market’s recovery. While Fannie Mae economist, Mark Palim, does not believe that the current trend in rising mortgage interest rates will curb the current housing recovery, he does caution that the pace at which mortgage interest rates continue to rise may be of “greater concern.” Palim points out two different time periods during the last twenty years where mortgage interest rates quickly rose and how those increases affected the housing market.

The first instance was during October 1993 to December 1994 when interest rates rose from 6.83% to 9.20%. Per Palim, “the rising trend in existing home sales was reversed” while the impact on home prices was subdued. The second instance was from October 1998 to May 2000 when “mortgage interest rates rose from 6.71% to 8.51%.” Because of the more gradual rise in mortgage interest rates, compared to the first instance analyzed by Palim, the pace of home price increases and home sales remained flat. To read more, go to:  http://bit.ly/15mYvwR.

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