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Interest Rates are on the Rise – What’s Next for Luxury Real Estate

Last week on our blog we discussed the correlation with interest rates and the inventory of houses (blog link here). Although luxury real estate does not seem to be directly affected by interest rates, there is a “wealth affect” that happens with low interest rates that influences purchasing decisions.

Last week, the rate was announced as 3.01%. It was the first time in three months that the mortgage rate surpassed 3%. In a press release accompanying the survey, Sam Khater, Chief Economist at Freddie Mac, explains:

“Mortgage rates rose across all loan types this week as the 10-year U.S. Treasury yield reached its highest point since June.”

There has been a very strong relationship between the yield and the 30-year mortgage rate over the last five decades, as you can see in the graph on the left.

The most recent jump in mortgage rates was preceded by a jump in the 10-year Treasury rate - called out by the red circles in the graph below.

What Effects the Treasury Yield Rate?

There are a several economic factors that impact Treasury yields, such as interest rates, inflation, and economic growth. There was a spike last week due to concerns about inflation, impacting the mortgage interest rates.

What Does This Mean for You?

Khater, in the Freddie Mac release mentioned above, says:

“We expect mortgage rates to continue to rise modestly which will likely have an impact on home prices, causing them to moderate slightly after increasing over the last year.”

Nadia Evangelou, Senior Economist and Director of Forecasting for the National Association of Realtors (NAR), also addresses the issue:

“Consumers shouldn’t panic. Keep in mind that even though rates will increase in the following months, these rates will still be historically low. The National Association of REALTORS forecasts the 30-year fixed mortgage rate to reach 3.5% by mid-2022.”

The Bottom Line:

Nobody can predict what will happen with mortgage rates, but keeping a close eye on what is happening will allow you to make the most informed decision when it's necessary.


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