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Rising rates could counter years-long price increase trends

For a period of years, home prices have risen incrementally on a monthly basis and sharply from one year to the next. However, more recently, these increases have started to take off because economic improvement is bringing more buyers to the market, but current homeowners are still mostly uninterested in selling.

Now, though, experts are starting to predict that rising mortgage rates – which are pushing toward pre-recession norms – might help to offset some of that home price growth in the near future, according to a report from MarketWatch. Given the way rates have moved in recent months, new data from Goldman Sachs suggests that home prices would have historically fallen at least somewhat. However, because home value increases have been chugging along without fail – and because there's now so much demand – it's likely that rising rates will simply cool off those upticks in the months ahead, rather than lead to prices actually falling any time soon.

"This median estimate suggests that the recent 60 basis point rise in mortgage rates should, all other things equal, lower house prices by 2 to 3 percent," the Goldman analysts wrote in their findings, according to MarketWatch. "This estimate thus supports our forecast that national house prices will continue to rise but at a slower pace in the next few years."

How hot is the market right now?
Indeed, the latest data Home Price Index from CoreLogic highlights this trend. From December to January home prices climbed 0.7 percent on a monthly basis, and 6.9 percent on an annual basis. But its projections for future home price growth are more muted; CoreLogic predicted a 0.1 percent home price increase from January to February, and a 4.8 percent jump from this past January to the same month next year.

What conditions drive it forward?
There are many parts of the country where homes for sale are remarkably scarce – at some of the lowest levels ever observed in their respective housing markets – and that means competition for a small number of properties for sale will likely be fierce, according to the Boston Globe. As such, many would-be buyers can likely expect to struggle locking in a home at the kinds of rates and prices they may have come to expect in recent years.

Right now, a variety of factors are coming together to create a perfect storm that may continue to drive up home prices. That includes the fact that millennials are coming of age and achieving significant financial power in the market. But beyond that, the low rate environment seen for much of the past few years provided a disincentive for current owners to sell, especially because they too would be entering a highly competitive housing market.

To that end, as home prices and rates alike keep rising, those who can't get into the market may end up paying significantly more for their properties over the lives of their mortgages.

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