Interest Rates vs Housing Prices
Many buyers and would-be-buyers have the same question when it comes to interest rates and their relation to housing prices. They often ask what will happen to housing prices if interest rates go back down. The short answer is that housing prices will rise along with buyer competition. Let’s go into why this will happen.
First, remember that the real estate market is all about balance. That balance is based on the economic principle of supply and demand. When supply is low and demand is high, prices will increase. Why supply is high and demand is low, prices decrease.
Right now, we’re in a period of increased interest rates for mortgages and other loans as you have probably heard much about. During COVID and the following recession, interest rates were dropped to historic lows to stimulate the economy. Many people went out and bought houses to take advantage of these low rates, which created a white-hot housing market where demand was high above the available supply. As a result, housing prices skyrocketed.
In 2022, inflation became a problem and the Federal Reserve started to raise interest rates to curb the amount of money moving through the economy. Since then, interest rates have risen pretty steadily. As a result, the housing market cooled slightly.
Because interest rates are now higher, many potential buyers have started to put off buying. This has decreased demand for homes, and–you guessed it–has either made home prices plateau or decrease depending on the area’s market.
But when interest rates go back down, buyer demand will certainly increase. Following supply and demand, the increased demand will make home prices rise–along with the competition to snag one of those homes.
At the end of the day, the real estate market will always be in flux because of supply and demand and outside market forces. This shows that there will never be a “perfect” time to buy for everyone. Instead, the right time to buy depends on your specific financial situation and where you are in your life. If it makes sense for you to buy a home now, then go for it! You can always refinance to a lower interest rate down the road.
My advice will remain the same: buy a home when it’s the right time for you. If you need help to see if now is the right time for you to buy, reply to this email and let’s talk!