With midterm elections approaching, help us make everyone smarter about the economy. Donate Now

When interest rates go up, what’s that do to housing?

Nancy Marshall-Genzer Nov 24, 2015
HTML EMBED:
COPY

When interest rates go up, what’s that do to housing?

Nancy Marshall-Genzer Nov 24, 2015
HTML EMBED:
COPY

The S&P/Case-Shiller index of home prices out Tuesday is expected to show continued increases, and a looming interest rate increase from the Federal Reserve raises the question of whether there might be a cool down in the market sometime soon.

But economists say the Fed’s rate hike is not expected to be like a lightning bolt, jolting the housing market.

“The Fed is tightening but it’s not doing so in a rushed manner, it’s not doing so in a rapid manner,” said Gregory Daco, chief U.S. economist at Oxford Economics. 

Daco expects interest rates to just creep up, gradually rising to around one percentage point next year, translating to around a half a percentage point rise in 30-year fixed mortgage rates.

“We’re going to rise from cheap all the way up to low,” said Frank Nothaft, chief economist at CoreLogic.

He expects the 30-year fixed mortgage rate to end up at around 4.5 percent by the end of next year. But Nothaft said the economy should be able to absorb that if it grows as expected. 

“We should see a rise in incomes and that’ll help to offset the small rise in mortgage rates,” he said.

And Nothaft said, even after they rise, mortgage rates will still be lower than before or during the recession.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.