Interest rates and home prices are in many ways tied together. When rates go down so many times the home prices go up and when rates climb the home prices will go down. That was not the case when we had stagflation. Stagflation has occurred twice in the U.S., once between 1974 and 1975 and again between 1978 and 1982. All of this happened during a period known as the Great Inflation (1965 to 1982).
Stagflation is a condition in which slow economic growth (stagnation), rising prices (inflation), and rising unemployment all happen at the same time. Although it is rare for slow economic growth and high inflation to coexist, it has happened in the past, and many believe it could happen again.
We are not in Stagflation so why are home prices remaining high? They say real estate is always local and economics can also be local. Why are home prices remaining high when the mortgage rates have climbed to above 7% and two years ago they were below 3% ?
The answer is in the question. It is estimated that 90% of the mortgages in San Jose were refinanced during the refinance boom and those who have the low rates do not want to sell. More than 75% of sold residences in the U.S. are existing home sales. That is a large population that chooses to not sell at this time, thus creating a demand for homes on the market. In San Jose right now there are only 349 active single family homes for sale.
Home prices are remaining high and with high interest rates fewer buyers qualify to buy a home. High Home prices and high interest rates do not create a healthy real estate economy.
