Interest rates can significantly affect the cost of financing a home, which in turn affects property-level costs and thus influence values. These changes can also have a direct impact on the supply and demand dynamics for the property.
There aren’t many factors that will affect real estate markets more than rising interest rates. An understanding of what influences current and future fixed and adjustable-rate mortgage rates can help you make financially sound mortgage decisions. For example, it can influence your decision about choosing an adjustable-rate mortgage over a fixed-rate mortgage and help you decide when it makes sense to refinance out of an adjustable-rate mortgage. Interest rates in the United States are determined by a number of factors, including, but not limited to the actions of the U.S. Federal Reserve, the health of the economy, what the government is doing and the rate at which people are saving money. Given that most home sales are financed through the borrowing of money in the form of mortgages, the housing industry is profoundly affected by changes by these rates. Mortgage rates affect the long-term cost to finance a home purchase. At the same time, interest rates represent a risk for mortgage lenders. Lower rates are associated more often with low-risk borrowers whose stable and consistently healthy financial history makes default less likely than borrowers with bad credit history.
When mortgage rates are lower, this makes the purchasing of a home more affordable. Consequently, the sales of homes rise as more consumers are able to take out a low-cost loan. Consumers with existing mortgages may attempt to re-finance their mortgage, meaning to say that they trade their current loan for another cheaper one. In periods of low-interest rates, more houses are often built as demand rises, and development companies are able to borrow money at a cheaper rate to finance the construction. While rates can raise demand for houses, pushing up the prices of houses, if the price gets too high, demand can cool, causing house prices to plummet. In order to get the best rate, apply for your loan when your credit is it’s highest and your debts are the lowest!