Most experts believe home demand is still too high for prices to be affected by rising mortgage interest rates.
Rates recently averaged 3.45 percent for 30-year fixed mortgages. Rates have not been at these levels since March 2020.
Potential homeowners are now facing higher rates in addition to the existing challenges of low inventory and high home prices.
Despite these factors, many experts say the high demand coupled with low inventory will keep prices rising.
The only thing that would bring prices down fast, experts say, is if an influx of homes hit the market to satisfy demand and decrease competition.
Instead, the higher rates are likely to impact prices in a more indirect way.
As rates rise, less buyers will qualify for mortgages, experts say. As a result, demand will gradually slow down, which will relieve the pressure on skyrocketing prices.
Instead of steady home price growth, which occurred last year, the pace is likely to slow down.
There will also be less bidding wars as the amount of buyers thins out over time. This will naturally cause a reduction in home prices.
This indirect impact on prices won’t happen quickly, experts say. It is likely to take a few months of higher rates for prices to respond accordingly.
In the meantime, competition and prices are expected to remain high over the next few months, especially as rates continue to fluctuate in response to numerous economical factors.
The current rise in mortgage rates is mostly tied to rising inflation.
Experts say if inflation continues rising at its current pace, mortgage rates will continue to rise as well.
The Federal Reserve is working to address inflation, which over time might help stabilize rates.
One of the biggest reminders experts have for buyers is that while rates are on the rise, they are rising from historical lows — meaning they are still historically favorable.
To compare, in the early 1980s rates hit as high as 18 percent, and in the past handful of years they have hit anywhere from 4 percent to 6 percent.
This means that depending on a buyer’s situation, they could still benefit from current rates.
Experts also are reminding homeowners that refinancing still may be a feasible solution — especially to tap into high amounts of equity resulting from higher home prices.
Instead of purchasing a new home, homeowners could take advantage of their equity to make home improvements that will boost the value of their home for a later sale.
Accessing this cash can be done with a cash-out refinance or a home equity line of credit.