Also affected: “The other implication of a rising mortgage rate environment is the rate lock-in effect,” Kushi said. “Many homeowners have locked into historically low rates, and are less likely to move as rates move higher – this does not bode well for housing supply.”

Notwithstanding the rate hike, Kushi said house price growth continues to remain near record highs. A severe supply-demand imbalance in the housing market indicates that house prices will continue to grow for the foreseeable future, she added. However, she added, as rates do rise, affordability may become an issue for some buyers on the margin. As buyers pull back from the market and sellers adjust their price expectations, house prices will likely moderate.

“A look back at six different rising mortgage-rate eras shows that house prices are resistant to rising mortgage rates primarily because home sellers would rather withdraw from the market than sell at lower prices – a phenomenon we refer to as ‘downside sticky’,” she said.

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She added that apart from the 1994 rising-rate period, when house prices declined slightly and briefly, house prices have always continued to rise, albeit more slowly, when rates have increased. Similarly, in the 2005-2006 housing bubble, house prices eventually declined after initially increasing, but never declined below the level at the beginning of the rising-rate era, she added.