Rising interest rates effect on real estate

U.S. Housing Market: Rising Interest Rates Effect on Real Estate & New Movers

The relationship between the economy and the number of houses for sale is a complex and dynamic one, historically shaped by several economic, demographic, and regulatory factors. Exploring the current rising interest rates’ effect on real estate helps shed some light on the challenges affecting new mover volumes.


Introduction to Overall Economic Factors that can Affect New Mover Volumes

Historically, changes in the economy have significantly impacted the U.S. housing market, affecting the availability of homes for sale — and their prices.

Periods of economic growth

During periods of economic growth, consumer confidence and purchasing power typically increase, leading to a rise in demand for housing. This increased demand drives up home prices and can result in a shortage of homes for sale, as homeowners are less likely to put their homes on the market when they are confident they will receive a high price. 


Periods of economic recession

In contrast, during periods of economic recession, consumer confidence and purchasing power decline, leading to a drop in demand for housing. 


This reduced demand can result in a surplus of homes for sale, as homeowners are more likely to put their homes on the market in an effort to offload assets during uncertain economic times.


Another factor that has historically affected the number of homes for sale is regulation. For example, the Federal Reserve’s monetary policy can impact the availability of credit, making it easier or more difficult for buyers to secure financing and affecting the number of homes for sale. 


Additionally, government policies aimed at promoting homeownership — such as tax incentives or subsidies — can increase demand for housing and reduce the number of homes for sale. 


Interest rates

Interest rates also play a significant role in determining the number of homes for sale. 


High-interest rates can make it difficult for potential buyers to secure financing, reducing demand for housing and increasing the number of homes for sale. Conversely, low-interest rates make it easier for buyers to secure financing, increasing demand for housing and reducing the number of homes for sale. We will dive into this in more detail shortly. 


The main monetary policy that is in the spotlight at the moment is the Fed’s raising of interest rates as a means to battle the high levels of inflation we have seen in the last year and the effect this has on mortgages. One good measure of inflation is the CPI…


Inflation and the Sticky Consumer Price Index (CPI) 

The Sticky Consumer Price Index (CPI) is a measure of inflation that accounts for the tendency of consumers to persist in using a limited set of goods and services, even as prices change


It can provide a useful tool for understanding the impact of inflation on consumer behavior. However, it is not typically used to directly predict the volume of new movers.


The Sticky Consumer Price Index can provide information on the impact of inflation on consumer behavior, but it is not a direct predictor of the volume of new movers. To better understand the factors affecting the volume of new movers, it is necessary to consider the broader range of economic and demographic data.


In general, the volume of new movers (specifically homebuyers) is influenced by a complex interplay of demographic, economic, and lifestyle factors, including household income, employment opportunities, housing affordability, and preferences for urban or suburban living. 


While inflation can play a role in these factors, it is not the only or the most direct influence on the volume of new movers.


That being said, inflation can impact the housing market in various ways. It affects housing affordability, borrowing costs, and consumer confidence. In turn, these factors can impact new movers’ behaviors


Historical effects of the economy on new movers

The trend for new movers in the last 50 years has been characterized by changes in demographics, economic conditions, and lifestyle preferences.


In the 1960s and 1970s, the trend for new movers was heavily influenced by the baby boom generation and the rise of suburbanization. During this time, many families moved to the suburbs in search of larger homes and more space, leading to a boom in single-family home construction.


In the 1980s and 1990s, the trend for new movers was influenced by factors such as a shift towards dual-income households, an increase in single-person households, and a growing preference for urban living. This period saw a decline in homeownership rates and an increase in rental housing demand.


In recent decades, the trend for New Movers has been influenced by the 2008 financial crisis, rising student loan debt, and changing preferences among millennials. This period has seen a decline in homeownership rates, an increase in rental demand, and a growing preference for urban living, particularly among younger adults.


What is the real effect of rising interest rates on real estate, mortgages, and new mover volumes?

One of the main worries in the current U.S. housing market is how rising interest rates will affect volumes. 


Low-interest rates

When interest rates are low, it is typically easier for potential buyers to secure financing for a mortgage, leading to an increase in demand for housing and a corresponding rise in home sales. Low-interest rates can also stimulate economic growth, as consumers are more likely to take out loans and make large purchases, including homes when borrowing costs are low. This creates a positive feedback loop, driving up demand for housing and home sales even further.


High-interest rates

On the other hand, when interest rates are high, it becomes more difficult for potential buyers to secure financing, leading to a decline in demand for housing and a corresponding drop in home sales. 


High-interest rates can also dampen economic growth, as consumers are less likely to take out loans and make large purchases when borrowing costs are high. This creates a negative feedback loop, reducing demand for housing and home sales.


Over the last 50 years, there have been several instances where changes in interest rates have had a significant impact on home sales. For example, during the 1970s and 1980s, high-interest rates resulted in a decline in home sales, as consumers faced significant challenges securing financing. Conversely, during the 1990s and early 2000s, low-interest rates led to a boom in home sales, as consumers were able to take advantage of low borrowing costs to purchase homes.


Interest rates have been a key driver of home sales in the last 50 years, affecting consumer behavior and economic growth through their impact on financing costs. Understanding the relationship between interest rates and home sales is essential for anyone looking to buy or sell a home. In other words, changes in interest rates can have a significant impact on the housing market, including the volume of new movers.


Looking to the future based on the past

Some of the factors that may affect the volume of New Movers in the next 3 years include:


Economic growth

A strong economy can lead to increased consumer confidence and purchasing power, driving up demand for housing and potentially reducing the volume of homes for sale. Conversely, a weak economy can lead to reduced demand for housing and an increase in the volume of homes for sale.


Interest rates

Changes in interest rates can impact consumer behavior, affecting the ability of potential buyers to secure financing and potentially affecting the volume of new movers.


Demographic trends

Changing demographic trends, such as aging populations and shifting migration patterns, can impact the volume of New Movers by affecting the demand for housing in different regions.


U.S. Housing Market Industry Outlook

Overall, economists believe we may have a mild and short recession due to falling spending because of interest rates and rising prices, pushed along by the Fed’s current policies. 


House prices are dropping, but they still have a lot of stored value from the last several years of increases. This, combined with high-interest rates and economic uncertainty, will deter people from moving in the short term.


The median existing-home sales price was up 1.3% to $359,000 in January compared to a year ago, according to the National Association of Realtors (NAR). While this showed a continued increase in prices year over year, the rate of increase was much lower than it had been in previous months. 


Conversely, month-to-month real estate sales prices were down 13% lower from a high of $413,000 in June of 2022.


Mortgage Rates continue to move up, recently hitting a 20-year high of 7.08% last fall. 


From December to January, total existing home sales dropped 0.7%. This made it the 12th consecutive month of declining sales, down 36.9% from a year ago per NAR


On the bright side, conflicting pressures could even out the cost of moving…

Inflation will increase costs for fuel and vehicle rentals, causing upward pressure on moving rates.

Inflation will deter people from moving, putting downward pressure on moving rates.


Perhaps, the biggest item that will override all the other economic variables is supply. Low housing inventory has been a large issue as far back as 2008, and this trend will continue. According to NAR, the current inventory is at a 2.9-month supply. While this has started to trend upwards compared to a few months ago, rising interest rates will deter many existing homeowners from moving as they would be looking at double their current mortgage rates. 


New home builds have begun to increase as supply chain issues have started to resolve themselves. The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) — which tracks builder sentiment — rose seven points, from 35 to 42. This is the second month-over-month increase following 12 consecutive months of declines.


What will 2024 bring for the U.S. housing market?

All these factors combined lead us to a case of mover volumes staying at the levels they have been for the last few years, with possible increases later in the year if a recession can continue to be avoided and inventory begins to trend up. This would mean a stabilization of mortgage rates and a reduction in home prices which should provide more confidence to prospective movers. 


2024 is the year where we will REALLY see mover volumes trend towards a much more standard 6-month supply as rates level off and housing prices trend down. 

This analysis of the rising interest rates effect on real estate, new movers, and the U.S. housing market has been created by our team of data experts. At Speedeon, we specialize in modeling and analyzing data to fuel your business’s strategic growth. Get in touch with us, and make the most of our expertise.


Further Reading

  1. Federal Reserve Bank of St. Louis. The Connection Between Interest Rates and the Housing Market. https://fred.stlouisfed.org/series/SP500
  2. National Association of Realtors. How Interest Rates Impact the Housing Market. https://www.nar.realtor/research-and-statistics/research-reports/interest-rates-and-the-housing-market
  3. U.S. Department of Housing and Urban Development. How Interest Rates Affect the Housing Market. https://www.hud.gov/program_offices/housing/sfh/buying/buyhh
  4. Zillow. How Interest Rates Affect the Real Estate Market. https://www.zillow.com/mortgage-learning/interest-rates-affect-real-estate-market/
  5. Bankrate. How Interest Rates Affect the Housing Market. https://www.bankrate.com/mortgages/how-interest-rates-affect-the-housing-market/
  6. https://baileysallied.com/blog/top-5-predictions-for-2023-from-the-perspective-of-a-moving-company-in-the-rockies
  7. https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/
  8. https://www.bankrate.com/real-estate/housing-market-predictions-2023/