These Interest Rates WILL Crash Real Estate… Or Not

Yesterday, my wife sent me a meme that shared interesting information: in 1971 interest rates were 7.3%, and they didn’t move lower for more than 20 years. During that time, home prices increased significantly. 10 years later, in 1981, rates maxed out at 18.6% because of inflation.

It got me thinking: how is that possible? All I am ever hearing is that as rates continue to go up, it would crash the market and pull values down.

It turns out that we have a period in history that proves otherwise. All of these numbers are based on data from Freddie Mac.

Significant Increase in Home Values

The interesting thing is to compare the interest rates in this chart with median home prices. In 1971, the median home price was $24,300. Amazing! In 1981, when interest rates hit their peak. Housing prices went to $66,800.

So, during the same time period that interest rates went from 7% to 18%, housing prices also increased by 175%.

How Our Current Real Estate Market Compares

How could that happen? Guess what: it is happening again right now.

I couldn’t find the data, but I guarantee that they went through long periods of minimal house sales, just like we see in our current market.

Keep in mind that there is a big limit on supply. Homeowners who have a great interest rate are not selling when interest rates are so high, which reduces the inventory coming onto the market. This keeps the supply down.

If the demand remains strong, home prices will continue to increase. Hopefully, it won’t take us 10 years to get out of the current high interest rates!

Look at the chart in the video and you will see the long-term trajectory of housing prices. History shows that the value of homes continues to increase over time. As long as there are more people being born than dying, it will keep up supply and demand.

Personalized Advice from a Mortgage Expert

Of course, we can’t predict what is coming. But we can look at the past trends to make informed estimations about the industry. These numbers show us that even though interest rates are high, it doesn’t mean that housing prices are going to crash.

If you are thinking about buying a home, then reach out any time to learn more about financing solutions. I am always here to help!