U.S. housing and interest rates: How fast and how high?

by MPA22 Jan 2015
With the prospect of rising interest rates likely to dominate market interest this year, the most pertinent questions regarding U.S. housing will be, 'How fast and how high?', according to Fitch Ratings.

By and large Fitch reported it expects the impact of a rising rate environment to be muted across most housing sectors so long as the rate increases are gradual and driven by a strong economy. Conversely, steady, sharp advances in rates could have an opposite and more adverse effect.

"Interestingly, the lone anomaly in both scenarios is U.S. homebuilders. While a rising rate environment could prove problematic to homebuilders, sudden meaningful increases in rates could actually serve as a positive and spur home sales at least in the short term," Fitch Ratings stated. "However, the ripple effect of rising rates on homebuilders would not be fully felt until 2016."

If realized, the trend would emulate the housing environment of the mid-1990s, when rates shot up from 7.1% to 9.2% in the space of a year (1994).