‘Foolish’ survey: Will rising rates doom housing?

The answers from three motley analysts will surprise you

Mortgage rates sunk even lower this week, and while they may wiggle a little up or down, they are at historic lows.

The average 30-year fixed mortgage rate fell to 3.69% this week following a decline in 10-year Treasury yields. That’s down from last week’s 3.78% and a last year’s 4.40%.

But almost certainly, the Federal Reserve will raise rates some time in the second or third quarter.

Motley Fool asked three of their analysts to give their predictions about what rising rates could mean to housing.

Here's a taste of what they had to say:

Matt Frankel: I don't believe the real estate market is doomed once interest rates start to rise again. Although even a marginally higher interest rate makes a significant difference over the life of a loan, mortgage payments on a monthly basis won't get that much more expensive when rates begin to rise — at least at first.

Jordan Wathen: I don't think rising rates will doom the housing sector either, but I think it will have two broad impacts that will be measurable and noticeable.

In all, I don't expect rising rates to be a death knell for real estate. Rising rates will keep inventory off the market as it becomes less attractive to move, just as rising rates will push marginal homebuyers out of the market for a home. If anything, household formation, not rising rates, will have the biggest impact on real estate going forward. And household formation has been climbing ever since the depth of the recession in 2009, a trend that probably won't stop in its tracks from a small move in interest rates.

Dan Caplinger: Jordan and Matt make smart arguments for how the housing market could sustain higher rates, but I still think the housing sector will have a lot of problems once rates rise. One thing to remember is that homebuilders have also enjoyed the fruits of low rates, as they've been able to finance land purchases cheaply, giving them more latitude to develop new properties. If debt gets more expensive, they'll have to be more selective about which projects they take on, and that could hurt their share prices.

To read their full comments, click here.

3d rendering of a row of luxury townhouses along a street

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