How will rising interest rates affect the market?

Actually probably looking at sellers market as current wage growth combined with buyers anxious to lock in lower mortgage rates will lead to stronger than usual Spring demand

The nation's Gross Domestic Product (GDP) grew at a seasonally adjusted annual rate of 2.6% in the fourth quarter of 2017 following gains in the previous two quarters of more than 3%, per the "advance" estimate released by the Bureau of Economic Analysis. This marked the economy's strongest stretch of growth since the expansion started in mid-2009.

Consumer spending, the main engine of the economy, grew 3.8% over the quarter after a 2.2% gain in the third quarter. Fueled by robust economic growth, Fed policymakers reckon three rate hikes this year, setting the stage for an increase in mortgage rates. Nevertheless, Americans are getting heavier pays now, with wages growing at the quickest pace since the end of the last decade.

https://www.nasdaq.com/article/how-far-will-economic-wage-growth-push-housing-demand-cm918121

In my experience, there is always a rush to finance or refinance when interest rates creep up. But when that subsides, I think the market will turn against sellers.

yes ximon that's why the Spring market will be stronger than usual...eventually though wage growth and economic growth will more than offset the effects of increased mortgage rates.

Steve, I hope you are right but I think it's an optimistic position to take when considering not just higher mortgage costs but also the possibility of higher local income and property taxes. And at some point, I am not sure that buyers will agree to apply all or most of their pay raises towards the price of a home.

I think up to the current level of interest rates (treasury below 3%; concerns about QE end are starting to be reflected to some degree) what Steve is saying is more likely to be true. But 10y up another 50-100bps may be different story (very hard to say whether that would happen) with supply deluge of ultra-luxury condos in NYC and luxury rentals.

After all, buy vs rent indeed matters. If I can rent an apartment for 10k with a 2 year lease and if substantially the same apartment is going to cost me 12k with Interest Only mortgage with even 30% down, some people may not buy. Ultra-luxury I believe have been in that situation for a little while.

Buy vs. rent is one factor although not I feel for the majority of city dwellers whom I think always prefer one over the other for non-economic reasons. But to a certain degree, I agree that declining rents will impact the sales markets. I also agree that small increases in simply financing costs may not make much if any difference in the market.

But I think it's unchartered territory for much of what we are seeing in the current market. At some point in every market cycle, buyers will say "no mas". We - at least I - just don't know when that will happen.

The end of QE certainly puts us in uncharted territory. Once ECB stops buying bonds, that may be another concern.

Also at the same time the US is going to double the debt it will be selling this year.

That is correct. As a counterpoint, e-commerce and technological innovations are keeping inflation low globally and with less impact in us rates, Germans are running surplus budget keeping a scarcity of safe assets. It is unclear how much of these effects are being reflected in the recent 50bps rise in rates.

If I were to be in the market to buy in next year, I will rush to buy in the next few months and lock in the rates.

Some more on this
https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/portfolio-insights-gfiv

https://seekingalpha.com/article/4151380-higher-mortgage-rates-crushing-housing

For the past seven years the pundits have been predicting that mortgage interest rates will rise substantially. Of course that has not been the case. Last month wages increased but that could have been due to a one time bonus because of the tax laws.

The yield on the ten year note does not necessarily move in tandem with the rise in Fed rates. And our new Fed chairman seems rather hawkish.

Our next important data will be a week from Friday when the jobs report for January will come out. If wages do not rise, then we have a somewhat different environment, in which case mortgage rates may go down due to a lower yield on the ten year note.

I would not be in a hurry to lock in my rate. If one needs financing, a good mortgage broker who knows the financial environment is your best bet.

https://www.nytimes.com/2018/02/27/opinion/bonuses-and-bogosity.html