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Home Prices Could Level Off Under Higher Interest Rates

Earlier this month the Federal Reserve raised the interest rate 0.25 percent. That hike was only the third since the housing crash, but it’s enough to send industry experts groping for answers about its potential impact.

One strongly anticipated effect of rising rates is a slowdown in home price appreciation. This month's Pro Teck Valuation Services Home Value Forecast asks a direct question: Could there be a slowdown, or a reduction in home prices if it costs more to borrow money?

"The simple answer is, yes," said Pro Teck CEO Tom O'Grady. "Sale price appreciation is forecasted to taper off in [San Francisco, Nashville, and Raleigh] as interest rates increase. San Francisco is already anticipated to experience a slight dip due to the two rate increases from the Fed over the last several months."

According to Pro Teck, these metros in particular would experience home price reductions if rates rise more than anticipated, as they’ve all seen all-time-high values as an offshoot of historically low rates these past several years. San Francisco, because of its already high cost of housing and lower affordability, could see as much as a 10 percent dip in home prices if rates increase more than anticipated, the report stated.

Beyond predictions, Pro Teck identified the strongest markets in the country. As it’s been for months, Washington State metros featured heavily in the ten best-performing cities in the U.S. Bremerton topped the list, which also included Mount Vernon, Oak Harbor, and Seattle.

All top metros are seeing increased sales, but a corresponding decrease in both active homes on the market and active days on market, the report stated. Seattle has the lowest total months of remaining inventory, at barely a month-and-a-half. It also has the lowest number of active days on market, 37.

On the flipside, eight of the bottom ten metros have experienced “a negative percent change in active listings,” which Pro Teck called a healthy sign. Huntsville, Ala, showed that the bottom of the market is also the most competitive, with less than five months inventory for homes costing less than $200,000.

“Higher priced homes seem to be staying on the market for extended periods,” the report stated. “For example, homes priced between $500,000 and $549,000 remain on the market for an average of 17 months.”

About Author: Scott Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.
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