Will higher mortgage rates kill the housing market? Maybe not!

By Neil Irwin

The rise in rates over the past month appears to be driven primarily by improving economic prospects. If that’s the case, even as homes become a bit more expensive, they will be doing so at the same time those other restraining factors dissipate. So rising mortgage rates, if they’re rising for good reasons, could actually be net positives for the housing market if they result from more people having jobs and being confident in their prospects.

Furthermore, stronger economic growth makes homebuying more attractive, as people are more confident in their jobs and incomes. Higher inflation can make homebuying more desirable, as you are buying a large asset whose value should rise with inflation while taking on a debt that has a fixed interest rate.

That being the case, as long as home prices remain below the level where affordability is out of reach, and so long as mortgage rates are rising because the economy is on the mend, the housing market should be able to withstand the blow.

Full article: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/04/will-higher-mortgage-rates-kill-the-housing-market-maybe-not/


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