We are currently, undergoing, a period of time, when, mortgage interest rates, are, at, or, near record lows, for a significant period of time. This creates, a series of ramifications, and impacts, when it comes to real estate, especially, as it comes, to creating demand, and, the ability of potential buyers, to buy a home! Obviously, when interest rates are lower, a buyer is capable of buying a more expensive house (for his buck), because, the amount of monthly payments, are a key consideration, in determining, how much, a lender, will approve. However, in many cases, this increases, demand, also, and, thus, based on the economic theory of, Supply and Demand, often, ends – up, raising the prices of houses, etc. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 5 ways, low – interest rates, impact the real estate market.
1. More house, for the buck: For, every percentage point, mortgage rates, drop, there is a significant drop, in the amount of the monthly installment. This, means, potential buyers, may be willing to look, at higher – priced places, than, they otherwise, could afford!
2. More people qualify: Mortgage lenders have strict qualification standards, based on a number of variables, including: credit history; overall debt percentage; housing debt percentage; etc. These percentages are based on the amount of the monthly payment, compared to one’s monthly income! When, there are lower rates, this means, there is a lower payment, needed, every month. The result 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), increases, also!
3. Lower construction costs: When money becomes less – expensive, it also reduces the cost of renovation, and/ or, construction expenses! Overall, borrowing, of all sorts, becomes more attractive, when, rates decrease!
4. Raises buyer demand: This, often, becomes, more complicated, because, it creates an increase in buyer demand, which, generally, causes the costs of houses, to rise! Therefore, there may be two competing forces, involved: more people qualify because of the cheaper – money, versus Supply and Demand, forcing things, to move, at – times, in the other direction!
5. New construction, and/ or, major renovations: Cheaper costs of money, often, makes 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, may be, one of the more predictable, factors!
Source by Richard Brody
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