Will Increasing Mortgage Rates Impact Scottsdale Home Prices?

There has been a lot of attention on the current trend of both increasing home prices and mortgage rates. Some of the attention has been due to arguments over whether house prices should drop when mortgage rates rise. That all seems logical, but this is rarely the case for reasons which we will discuss in the next section.

Shouldn't Scottsdale Real Estate Prices Decrease if Interest Rates Increase?

The theory of home prices decreasing is typically discussed by those people who are looking for a home to purchase. If you are a homebuyer, you like to think you are getting a good deal by paying more for a home, and you should be able to see a decrease in price somewhere else as well. Unfortunately, there are several causes for home price increases that occur simultaneously. There are factors that cause home prices to rise including a recovering economy.

The main reason for increasing home prices during the current Seller's Market is the lack of inventory. It is simple supply and demand. There are more buyers trying to purchase a property with fewer available Scottsdale homes for sale.

The average American housing mortgage rate hasn’t changed much in the past few years. The only thing that really fluctuates the housing mortgage rates is the overall real estate market, which is affected by factors like increased job growth in a particular area, pay raises, or rising real estate prices. A more pertinent reason is that the population, as well as the general economy, have increased which allows more people to rent or buy.

A recent study by the John Burns Real Estate Consulting found mortgage rates have very little impact on the cost of the home. This is based on the history of prior real estate and mortgage cycles.

I had a phone discussion over a year ago with a woman who called to inquire whether a particular Scottsdale home for sale would accept an offer of around $20,000 under the asking price. This was a newer listing and I told her they would probably receive multiple offers (it wasn't my listing but she found it on my website). I explained that most, if not all, of those offers would be closer to the asking price and maybe at or above.

She couldn't believe it and we had a friendly banter where I tried explaining the Seller's Market to her. She wouldn't agree and said she would just wait until prices go down. I told her it might be a very long wait. I wonder what she's thinking now.

Bottom Line

Just as the economic downturn progressed into recovery and home prices began to rise, it is increasingly more likely that mortgage rates will follow closely. A growing recovery in the economy will see the interest rate rise to some extent, which will likely mean an increase in rates.