An investor client asked me whether higher interest rates might cause the upward pressure on sale prices to slow down. What I hear most is that the anticipated jobs from the Tesla gigafactory make Investors think prices will continue to go up. The real problem is a lack of inventory. Many prospective Sellers are still underwater, either because they bought just before or during the real estate downturn, or they refinanced and the value of their houses did not go up as much as they thought. That keeps them from listing their homes, especially if they don’t want to short sale due to its negative effect on their credit. Many Buyers have little money to put down and little income, so they can only qualify for lower priced homes. And FHA, VA require that the home be pristine, which they rarely are. Of course, they can get an FHA 203b loan which would allow them to roll in the cost of repairs, but that belies the issue, which is they are still limited by for how much they can qualify. Because there is so much competition for these houses, the offers pour in, and often get sold for well above listing price, and the beat goes on and on and on. Enter investors who have the wherewithal to buy the house, fix it up and “flip” a well upgraded house for a nice profit but still affordable for those limited income buyers.
If interest rates do go up, and so far it looks like they won’t until at least much later in the year, it could limit the number of buyers and possibly slow down the price increases. On the other hand, the price increases can have the effect of increasing supply because more Sellers would be willing to sell. Nothing happens that does not benefit someone or something.