Economic Update with Michael Campbell, Economist

The Impact of Higher Interest Rates

Contrary to what most people seem to believe, it’s not automatic that higher mortgage rates are negative for housing activity. There are lots of historical examples where sales and prices rose along with interest rates.  For example, between 1978 and 1980 mortgage rates were headed towards 18% yet sales activity and house prices continued to climb.  The reason? As long as people perceive that the price increase will be bigger than the cost of borrowing they will continue to borrow. As soon as the price perception changes then the buying dries up