In a higher rate environment, home affordability is diminished and there is less incentive for renters to purchase a new home. Additionally, the more expensive mortgage rates may scare away current homeowners who are thinking about upgrading to a bigger, more expensive home. [Factors That Are Holding Back Housing, Homebuilder ETFs]
On the other hand, housing industry experts also argue that higher rates reflect an improving economy and wage growth, which could also help the housing market in the long run.
“As long as you are in a period of time where rising rates are remotely reflected to increased levels of economic activity and people feeling better, then that rising rate environment is neutral to actually a positive because it’s typically reflective of overall economic activity being better,” Bruce Thompson, chief financial officer of Bank of America Corp., said.
SPDR S&P Homebuilders ETF
For more information on the housing market, visit our homebuilders category.
Max Chen contributed to this article.