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<br /> <br />years a policy of gradual rate increases, which should have relatively benign effects on housing <br />and mortgage markets. <br /> <br />Current Environment <br />Which brings us to what is presently going on in the housing market. <br /> <br />Generally, mortgage rates tend to rise when the economy is growing, the job market is healthy, <br />and wages are rising. In this environment, people can typically afford more and are more willing <br />to take out a larger mortgage. At the same time, factors like inventory and cost of construction <br />can drive housing prices up, which can have the opposite effect, dampening housing <br />affordability. <br /> <br /> <br /> <br />The graph above illustrates how home prices in Ehlers’ three primary metropolitan markets <br />(Denver, Minneapolis, and Milwaukee) have moved. The red line indicates the Case-Schiller <br />National Home Price Index. Each line measures changes in the prices of repeat sales of single- <br />family houses – meaning, the index tracks changes in the value of residential real estate over <br />time. <br /> <br />As you can see, prices in the Denver and Minneapolis Metropolitan Statistical Areas (MSAs) <br />have increased far more than the national average. The Milwaukee MSA has more or less <br />tracked in line. So, what is driving the rapid increase in home prices? Should we expect these <br />trends to continue in the near future? <br />