Will Rising Mortgage Rates Impact Home Prices?

History shows us that we don’t need to fear the recent spikes in mortgage rates because they won’t have an impact on home prices, according to Fannie Mae researchers in a new report.

Fannie Mae evaluated the trajectory of mortgage rates since 1990. Over the years, researchers have found that rising rates don’t hamper home sales and have no impact on home prices.

"History suggests that interest rate increases at the level recently witnessed will not stop the current housing recovery," the report notes.

For example, the study found that from October 1993 to December 1994, mortgage rates rose from 6.8 percent to 9.2 percent. However, home prices leveled off and then only dropped slightly during that time.

From October 1998 to May 2000, mortgage rates soared from 6.7 percent to 8.5 percent and there was no impact found on home prices during that period, according to Fannie Mae.

"What we see through the ups and downs of rate changes is that sellers are reluctant to lower prices," Mark Palim, who led the Fannie Mae study, told CNNMoney.

Source: “Higher mortgage rates won't hurt recovery, Fannie finds,” CNNMoney (July 18, 2013)