Rising Rates Impact on Housing

Rising Rates Impact on Housing

  • Hamid Koochak
  • 10/13/22

Rates have been rising all year. From 3.25% at the start of the year to eclipsing 7.14% this week, rising rates have substantially impacted the housing market in so many ways.

Listed down are some factors that have been significantly affected by rising interest rates.


Purchasing Power

The table shows a decline in purchasing power caused by rising rates. At the beginning of the year, you can afford a $1,021,111 home with a 10% down at 3.25%. But at 7.0%, you can only purchase a $635,556 house.



The table shows a sample mortgage payment on a $650,000 loan with 10% down. At the beginning of the year, you are looking at $2,829/month. And at 7% you're looking at $4,324/month. This is a difference of roughly $18,000/year which is pretty significant, especially for median incomes.


Demand and Supply

Everything has slowed down considerably. The left graph shows less pending activity today compared to the three–year average prior to Covid. As interest rates continue to climb all the way up to 7% earlier this week, definitely has an impact on the number of properties that have gone into escrow. (The last two weeks are the largest drop since the start of July last year, we were 18,150 at this time, which was 62% higher than where we are today. And the three-year average is 14,840, still 32% higher.) High rates are definitely putting pressure on demand which has allowed more homeowners that are coming on, where they're languishing a little bit longer, aren't selling this quickly and they accumulate over time.


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