Could a Surge in Mortgage Rates Imperil the Housing Market?

Over the past 18 months, U.S. mortgage rates have soared from 2.9% to 7.6%, their highest since 2001. Will this tremendous increase in mortgage rates cause the U.S. housing market to crash like it did in 2008?

On one hand, higher mortgages have led to a steady decrease in the number of new mortgages being issued. In recent weeks, the number of new mortgages has fallen to its lowest level since 1995.

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On the other hand, there is a major difference between today and the period leading up to the global financial crisis: vacancy rates.

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Vacancy rates are extremely low. Before the 2008 financial crisis, 10% of rental properties and 3% of owner-occupied properties were vacant. Today, only 6.4% of rental properties are vacant, near their lowest since 1985, while owner-occupied properties have a record low vacancy of 0.7%.

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Home prices have stopped rising, but so far, they aren’t collapsing. Over the past year, the price of buying a home in the U.S. has fallen by about 1%, while rental costs have risen by around 8% as higher rates force many would-be buyers into the rental market.

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By Erik Norland, Executive Director and Senior Economist, CME Group

*Various CME Group affiliates are regulated entities with corresponding obligations and rights pursuant to financial services regulations in a number of jurisdictions. Further details of CME Group's regulatory status and full disclaimer of liability in accordance with applicable law are available below.
**All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Fundamental Analysishousingmarketinflationinterestratesrealestate

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