The impact of interest rates on housing prices and demand

Many homeowners either own their homes outright or have low mortgage rates. The housing market is facing a ceiling in price potential, especially if interest rates remain elevated. The demand for housing may remain tepid in the medium term if rates stay high. Goldman Sachs research shows that borrowers are stretching their mortgage payments relative to income, which could lead to higher delinquency rates. Both borrower risk and product risk are important factors in mortgage lending standards. However, the risky mortgage products that were prevalent in the early 2000s have been largely eliminated from the market, reducing the risk of defaults. This is one reason why home prices are more protected in the current cycle.