We are currently going through a period of time, in which mortgage interest rates are, at or near historical lows, for a significant period of time. This creates a number of ramifications and impacts, when it comes to real estate, especially when it comes to creating demand and the ability of potential buyers to buy a home! Obviously, when interest rates are lower, a buyer is able to buy a more expensive home (for his money), because the amount of monthly payments is a key consideration in determining how much a lender will approve. However, in many cases, this increases, the demand also and therefore, based on the economic theory of Supply and Demand, it often ends, raising house prices, etc. With that in mind, this article will briefly attempt to consider, examine, review and discuss, five ways low interest rates impact the housing market.
1. More home, for the money: For each percentage point, mortgage rates go down, there is a significant drop, in the amount of the monthly payment. This means that potential buyers may be willing to look for places with higher prices than they could otherwise afford.
two. More people qualify: Mortgage lenders have strict qualification standards, based on a number of variables, including: credit history; total percentage of debt; percentage of housing debt; etc. These percentages are based on the amount of the monthly payment, compared to a person’s monthly income! When there are lower rates, this means that there is a lower payment, required, every month. The upshot of this is, as long as one’s credit history / rating qualifies, the number of people who will qualify (and / or are eligible for more financing) also increases!
3. Lower construction costs: When money becomes less expensive, it also reduces the cost of renovation and / or construction expenses. In general, loans of all kinds become more attractive when rates drop.
Four. Buyer demand increases: This often gets more complicated, because it creates an increase in demand from buyers, which generally drives up home costs. Therefore, there may be two competing forces involved: more people qualify because of cheaper money, versus supply and demand, forcing things to move, sometimes, in the other direction.
5. New construction and / or major renovations: Cheaper money costs often make new construction and major renovations more attractive, because they become more affordable, in terms of financing costs, etc.
Many factors impact the real estate market. However, lower rates for borrowing money can be one of the most predictable factors!