One of the blogs I follow is “Housing Notes” by Jonathan Miller, a nationally-recognized real estate appraiser who works in New York and Connecticut. It’s more than a little out of my area, but there are always useful tidbits.
Even though Miller’s post focuses on the political turmoil (it’s everywhere) of a national appraiser’s group, this week’s blog post is no exception. It includes a short interview with Fannie Mae Chief Economist Doug Duncan, who predict that interest rates will rise in the near future. Like we haven’t been expecting that for a while! You just have to look at the chart attached to this post to see that.
But what really is interesting is what Duncan says about the effect of higher interest rates on the real estate business. It seems that interest rates have very little effect on prices, but steep increases do affect volume. More specifically, the reason for the increase affects volume in certain ways for unique reasons. You probably want to skip most of Miller’s post and go straight to the video interview, which I’ve summarized below.
As I’ve said before, the housing market isn’t a smoothly rising curve. It’s bumpy. But if you invest for the long-term and can hold on through the bumpy parts, prices tend to rise. There is no correlation between interest rates and people’s willingness to pay more for the right home. Only the economy can cause prices to fall. And that does happen…sometimes.