Well, it’s finally happening, mortgage rates are rising. The average interest rate on a 30-year-fixed rate mortgage has reached 3.22%, according to a Freddie Mac survey. That’s the highest rate since May 2020. You might expect housing prices to drop or at least cool down as a result.

Here’s the theory: Higher mortgage rates mean higher monthly payments, which fewer buyers can afford, which means less demand and lower home prices. 

But inflation changes things, said Richard Green, a housing economist at USC. 

“If you look at mortgage rates relative to inflation, they are still very cheap right now,” he said. Plus, rents are still rising dramatically. “If rents go up, then you’re going to say to yourself ‘I’d rather not rent.'”

Most housing economists expect higher interest rates to marginally slow price growth this year. 

And some buyers will be hit more than others because of higher rates, said economist Lawrence Yun with the National Association of Realtors. 

“It could be $250 additional per month in California, while it’s only $50 in the midwestern markets,” he said.

That could make cities like Boise and Phoenix even more attractive to remote workers in 2022.