Rising Interest Rates

The big picture: Interest rates on home mortgages have spiked more rapidly than they have in decades, reducing affordability. Yet strong income growth and unstoppable demographic forces are propelling high demand.

Why it matters: It’s likely there will continue to be a gap between supply and demand — making for a frustrating market for all involved.

State of play: The rise in mortgage rates in recent weeks is jaw-dropping, and outside the range of any recent experience.

The impact: The speed and the scale of the adjustment mean that a family that can afford a $2,000 per month mortgage could have borrowed $424,000 at the beginning of March — but only $375,000 at Friday's 4.95% rate.

The supply side of the market has its own troubles, as homebuilders have not been able to deliver enough houses to address demand, holding back sales volumes.  There biggest challenge is completing homes, not selling them.

It may be a bumpy path as the housing market finds a new equilibrium. Rising mortgage rates will limit what buyers can bid, yet it is high prices that incentivize suppliers to ramp up production.  Homeowners with a low mortgage rate may be more reluctant to sell and give up the benefit of a sub-3% rate, further limiting supply.

The bottom line: We may end up with less supply and transaction volume, worsening America's housing affordability crisis.