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Rising Interest Rates Are Unlikely to Deter Home Buyers

Stocks in this article: XHB IYR DIA SPY

Between 2003 and 2007, similarly, home prices rose in both the U.S. and in California, while interest rates rose. Later, in 2007, prices plummeted during a time of declining interest rates.

"We are not attempting to draw a conclusion that higher mortgage rates support rising home values," the analysts emphasized in their report. "Rather we are suggesting that the direction of mortgage rates has little impact on the direction of home prices, as other factors, such as economic growth and home supply, are likely the key drivers of home price movements."

Indeed, while low interest rates have enabled many people to refinance or purchase homes, they are not the reason behind the rise in home prices. Rates were low for a long time after the bust, yet home prices went nowhere but down until March 2012.

Rather it was the decline in excess supply of homes that kickstarted the housing recovery.

For now, the supply of existing and new homes remains constrained, but it is expected to ease as more sellers list their homes and homebuilders ramp up construction.

This could moderate price gains, especially if mortgage credit standards remain tight, forcing more people to rent.

-- Written by Shanthi Bharatwaj New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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