Will Rising Mortgage Rates Kill The Real Estate Markets? I doubt it!

Will rising interest rates kill the real estate markets? I doubt it.....especially on the higher end of the markets where many are earning much more (and who have seen their net worth climb over the past 2 years). Then again, we are coming off a record-breaking year and one should expect extreme volume and pricing escalations to moderate. About 30% of homes are purchased all-cash, more so on the high end too. And COMPASS agents are primarily located in areas that sell higher-priced properties.

Here is another perspective to ponder: Let's compare the cost to finance a $1 million home at a higher interest rate versus a higher selling price:

1. If home prices rise by 10%, a 3% interest rate 30-year fixed-rate mortgage monthly cost rises by about an additional $337 more per month to pay for that 10% selling price escalation......for an $880,000 mortgage on a $1.1 million sale price instead of an $800,000 mortgage on a $1 million sale price.

2. If the same home price stays the same - $ 1 million - but mortgage interest rates rise from 3% to 4%, the additional monthly cost is $446/month, about $109 more than the 10% price increase example with lower (3%) rates....

BUT.....example #1 requires an additional $20k in cash for the down payment. That $20k alone will pay about for 15 YEARS of the difference between the rising home price monthly mortgage payment vs. the rising interest rate example.... if it earns zero interest.?If that $20k is invested with a 5% return, it may actually absorb close to the entire lifetime of the 30-year mortgage's additional cost.?

One painful consequence of super-low interest rates is that they can fuel (often very large) home price escalations via excess demand. 10% escalations is a rather conservative number for many parts of the US' price escalation in 2021:?Some saw pricing escalation above 20%!

Now imagine a market where home prices DON'T rise dramatically - if at all - with higher mortgage interest rates. It could be a wash....

Now imagine all those buyers who lost out in the numerous multiple bidding wars in 2021. Not to mention those now confronted with sharply rising rental costs. And let's not forget just how much the US is UNDER-building.....

Let's revisit this subject a year from now.