In most years, mortgage interest rates do not have a large impact on the housing market. Other factors have a greater influence that usually overwhelms the effect of any fluctuations in rates. This is not one of those normal years.

This is because the changes in interest rates have been both fast and enormous. Here is chart showing the 30 year fixed rate reported by MND over the past month:

We can see that rates increased by 14% from 6.47 to 7.37 over the last month alone. This is a colossal hit to affordability in a very short time and the consequent reduction in demand is rippling through the industry in ways that have not been experienced since the 1980s.

High interest rates make demand fall, but on their own they do not make prices fall. That depends on supply and market sentiment. It is a mixed story on these. Market sentiment is unusually poor (which funnily enough, is often a good sign that things will shortly improve). Supply is also weak, with sellers discouraged. The keeps prices much higher than if supply were rapidly increasing.

The market is moving in favor of buyers, but nothing like as fast as it did during the bursting of the 2005-6 bubble. Without a source of extra supply, prices are very likely to retreat but relatively slowly and modestly. Any talk of massive price drops is pure speculation. I am not saying it cannot happen. Any thing is possible in the right (or wrong) circumstances. But if supply stays tight, then price movements are likely to be slow and gentle, not sudden and violent.

Market insights provided by the Cromford Report.