The reason that rising rates, and rising mortgage rates are less impactful to US Housing is due to the fact that more than half of the US mortgage market was refi’d since 2020.

Monetary tightening works by damping consumer demand, with credit becoming more expensive. That’s having an impact on Housing markets now, because new buyers have to pay 7% or more. But the large majority of American homeowners have fixed mortgages, mostly much cheaper than today’s going rate. Those who refinanced in the pandemic have locked in extra purchasing power for potentially decades ahead.

This is good news for all the homeowners who locked in cheap loans but not so great for the Federal Reserve, as it seeks to cool the economy by raising interest rates.

Past economic cycles were quite different as more Americans had mortgages that carried variable interest rates. UBS economists have estimated that the share of floating-rate debt in the US mortgage pile has shrunk to about 5%, from a peak of around 40% in 2006. That’s one reason for the “lower responsiveness of household credit to higher rates.” As outlined in our two charts below, more than half of US mortgages originated since 2020 with 60%+ of all first lien mortgage debt at 4% rates and below. This will dampen the effectiveness of the Fed’s recent hiking campaign on the US Housing market and keep inventory suppressed (as current homeowners will not move to restrike financing at higher rates).