How Interest Rates Affect Home Buying: Higher Rates = Lower Affordability

Some examples of how home affordability change as mortgage interest rates go up. Generally as interest rates rise, people can afford to buy less housing. So this causes one of two things to happen: either people buy a cheaper home, or they just deal with a higher payment.

Lower home affordability negatively affects the housing market and leads to lower prices going forward. Balancing this out is that there is a housing shortage right now, so the chance of a housing crash is far less likely in 2022 and 2023. Instead it is likely that the prices of home will either decline slowly or stay relatively the same until mortgage rates drop, at which point home buying will pickup and home prices will start going up again.

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