You’d be surprised to learn how much of impact interest rates can have on the value of real estate. Most people assume that mortgage rates are what is affected most profoundly; however, that is not necessarily true. The real estate market and price of homes can vary greatly as interest rates fluctuate, impacting the housing market as a whole. Interest rates can also change capital flows, return on investment for investors, and supply and demand. Read on for a breakdown of how interest rates work, what they can impact and how keeping your eye on interest rates can benefit you.
Interest rates can be affected by several different variables, but the four most impactful are inflation, the Federal Reserve, and bond supply and demand. As inflation occurs, consumers feel that they have less purchasing power, ultimately causing interest rates to rise in order to make up for the change in the market. Similarly, the Federal Reserve works to keep the market balanced, causing rates to fluctuate at times. Additionally, if there is a dramatic increase or decrease of supply in the bond markets, this can lead to higher interest rates. Each of these can cause interest rates to rise and fall, ultimately influencing consumer trends and real estate value.
Ultimately, mortgage rates directly affect real estate prices. Essentially, as interest rates increase, cash flow loses its value, causing real estate prices to rise. Another way you can look at this is the lower the interest rate, the lower the return expectation, making real estate more attractive to investors. Aside from the price of a new home, rates can also impact what types of mortgages potential homebuyers are able to secure, affecting the entire housing market.
If you’re thinking about buying a home in the near future, it may be a good idea to try a mortgage calculator to get a sense of what your interest rate may be. In addition to the price of the property you’re looking to purchase, the current interest rate can impact how much capital is available to you and what the demand is in the market. Low-interest rates are very important to consumers, and being able to maximize on a market that is in good shape can make the investment of buying a home even more significant. Being prepared and double-checking to see if you’re getting the most out of your investment is the best thing to do when purchasing a property.