Will an Increase in Interest Rates Crush Home Prices?

Housing market collapse

There are some who are calling for a substantial drop in home prices should mortgage interest rates begin to rise rapidly. Intuitively that makes sense. The cost of a home is determined by the price of the home and the price of financing that home. If mortgage interest rates increase, less people will be able to buy. The logic says prices will fall if demand decreases.

However, history shows us that this has not been the case the last four times mortgage interest rates dramatically increased.

Here is a graph showing what actually did happen:

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We will have to wait and see what happens as we move forward. But, a fall in prices should rates go up is not guaranteed.

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