But. Most importantly, eventually, you'll be able to refinance at a lower rate. That is, you're getting a home priced for, say, 7%+ market, and paying for it at, say, a 5% rate; which also likely means your home will increase in value because demand has returned.
If you want a comparable place, your monthly payments are going to nearly double. Not many families can absorb that. You could sell and rent, but most people don’t want to do that, it feels like going backwards.
Ironically this means new construction is doing pretty good. They’re offering discounted mortgages and it’s basically the only option for someone wanting to go from renting to buying.
Today’s buyers implicitly expect to be able to refinance sometime soon - without that expectation prices would be far lower.
If rates at 7% is our new normal then people buying homes today are far overpaying and they will be disappointed in a year’s time.
Demand falls, since few people MUST sell their homes for lower prices.
Now if the high rates were to continue for a longer time, that would be a different story.
In my Canadian city, where nominal prices did fall due to ballooning interest rates, but not proportionally to increased costs.
This is because: 1. Home sellers still have to live somewhere, and will not be willing to sell and move for a big loss (unless they absolutely have to)
2. There is a belief that rates will come down to reality at some point, even if not as drastically low as the pandemic years.
3. Interest rates do not raise the supply of homes. It’s the opposite in fact. Rental prices continue to increase quite quickly. So even investors are less willing to sell for a loss, as their yields may not have been as highly impacted.
Otherwise there is always more demand than supply anyway and people will pay up to what they can afford, and if interest is higher they can afford less.
When mortgage rates go up, demand falls. But you can't just jump to the conclusion that price will fall. Why? Because you have said nothing about supply. Is supply constant or going up? From what we know, the answer is neither. Supply is also falling, because folks would have to give up their sweet low rates and buy at a higher rate. So the real question is what's the ratio of demand falling to supply falling? If they are the same, then price will not fall. Price would stay the same.