After rising by more than a full percentage point from early May till the end of June, 30-year mortgage rates have more or less leveled off. However, the impact of higher mortgage rates on the housing market is still unknown.
On July 30, the latest figures for the S&P/Case-Shiller Home Price Indices showed that the housing recovery continued in May, and that their 10-city and 20-city composites posted their strongest year-over-year increases since early 2006. However, since those indices represent three-month averages ending in May, the latest figures just barely overlap the rise in mortgage rates. Thus, it is too early to tell what impact higher interest rates will have on home prices.
In part, the relationship between mortgage rates and home prices can be represented on a mortgage calculator. For any given level of monthly payment on a loan calculator, if you increase the mortgage rate the total size of the loan will shrink. That smaller loan size indicates that the lower price point that consumers can afford at that level of payment.
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