The short-term effect of rising interest rates on home appreciation.

Interest rates have been going up, so why are home prices still rising? If you’ve paid attention to the market for any length of time, you’ve probably heard that prices should go down when mortgage rates rise. This is true in the long run, but we’ve seen the opposite recently.

Over the last two months, rates rose from 3% to just under 4%. They increased almost a full percentage point, but we experienced a huge home price appreciation run during that same period. So what gives? Rising mortgage rates will hurt homes values in the long run, but in the short term, there is almost a panic among buyers. They’re afraid of missing out on low rates or getting priced out of the market, so they become even more desperate than normal and overbid regularly.

“Buyers are worried about getting priced out of the market.”

We can see the evidence of this in our average home price over the last couple of months. At the end of December, our average price was $930,000. At the end of February, our average price rose to $1,030,000. That is a $100,000 (10%) increase in two months, which is just crazy. 

We saw this phenomenon happening the last time we saw a bump in interest rates, back in 2018. At the beginning of 2018, interest rates sat at about 4%. By the first week of March, they rose to 4.5%, which is a 0.5% run in just three months. Over those three months, the average sale price went from about $652,000 to $694,000. 

That’s not quite the same level of appreciation, but it’s very similar to what we’re experiencing now. The takeaway is that when rates rise and are forecasted to continue rising, you can expect a hefty bump in appreciation in the short term. 

If you have any questions about this data or how the recent appreciation affects your home, feel free to call me. I’d love to hear from you.