Rising mortgage rates could slow house price surge
Mortgage rates have jumped to their highest level since early 2020.
Why it matters: The rising cost of home loans could slow the booming American market for residential real estate.
State of play: Across the country, house prices have exploded over the last two years, as the pandemic — and super-low interest rates put in place by the Federal Reserve — ignited a home-buying frenzy not seen since the housing bubble of the mid-2000s.
Be smart: The Fed uses interest rates to influence how the economy works.
- When the Fed pushes the interest rates it influences lower, it affects the costs of borrowing for everyone from major corporations to would-be home buyers.
- In recent weeks, interest rates have risen as the Fed has signaled that it's moving quickly to try to stop inflation from getting out of control. Mortgage rates follow the rates the Fed influences.
The bottom line: Higher mortgage rates will make homes less affordable for some, especially first-time buyers.
- In theory, fewer buyers should slow the pace of home price increases.
- Over time, a slower ramp in home prices will help lower the headline inflation figures — shelter costs are the biggest component of the Consumer Price Index.
Go deeper: Housing gap worsens through pandemic