Several folks have requested at one point or another that I chart the correlation between interest rates and housing prices, in order to see if rate movements are a good short-term predictor of price movements. I was sort of dubious of this idea, but being the nerd that I am I had to go ahead and graph it nonetheless.
The end result was that housing prices do not really exhibit any interesting relationships with interest rates. While I measured both condos and SFRs, the more volatile condo prices seemed like more fertile ground for interest rate influence. Yet as these graphs show, even they lacked a discernable pattern:
(Note: condo prices are pushed back one month to account for the fact that closing prices were usually negotiated in the prior month).
I thought I’d share the results given that more than one person has expressed interest in this topic, but the net is that interest rate movements don’t determine home price movements in the short-term.
Just to be clear, I believe that interest rates are incredibly important to the health of the market. But rate changes of the magnitude we’ve seen will not exert a notable short-term pricing effect.
The real estate market is a big, slow boat being carried on cross-currents of sentiment, rates, and economic factors. Given that most San Diego homes are bought with adjustable mortgages, a continued rise in short rates will certainly push the boat toward lower prices. But it will be a slow and fairly steady movement whose effect is combined with that of the other cross-currents. Interest rates matter, and they matter a lot—but what they really determine is the final destination as opposed to the intermediate turns along the way.