Are we just one interest rate hike away from a crash in the budding housing recovery?
That’s the question that many home buyers are asking.
“What’s gonna’ to happen if the rates rise, won’t the sky fall?”
I can’t make any guarantees on the sky but here are two key points to consider in this important debate:
Supply of money > Cost of money
Time has proven that it’s not about the cost of money it’s all about the SUPPLY.
This means that people will continue to borrow money to buy the things they want as long as SOMEONE else will extend them credit, and this includes houses.
I’m sure experienced real estate professionals haven’t forgotten what created the market crash in 2008. If you didn’t know it was credit.
The issue back then with credit was the lack there of. People couldn’t get financed to buy a home; nor could they find anyone to refinance their existing mortgage or extend a line of credit against their home equity.
This lack of “flow” is what caused everything to lock up, freeze, and drop like a snow flake.
Rates are still low
When interest rates ticked up in 2013 some analysts felt that this small change caused the reported slow down in property sales nationwide.
Now, they are concluding that due to their “observation” if rates increase further the entire market will crash.
However, this is a misread.
Interest rates today without even checking are still very close to all time lows. They may not be at record lows precisely but they are much closer to the lowest they’ve ever been, than the highest they’ve ever been.
This tells you that interest rates have plenty of room to increase from here.
Now it’s over to you.
What’s your take on what will happen to housing recovery after an increase in interest rates?