Real Estate

What will happen to home sales if interest rates increase?


Mortgage rates change daily, but they have remained in a historically low range for quite some time. This 2018 began with a slight rise in interest rates for mortgages, and people start asking what to do in this situation. Should the would-be home buyerswait until the rates get higher for buying a home at a lower cost? Should the homeowners lock their rates? Join us to briefly analyze what could happen if interest rates continue to rise.

Will the home prices drop if the interest rates increase?

Generally, the rule of thumb is when interest rates go up, sales prices move down to compensate.

The Sun West Mortgage interest rates can vary depending on the purchasing power of the people. If a wage increase occurs, even if it is minimal, this can mean an increase in the interest rate. Changes in tax laws can also positively or negatively affect these rates.

Thus, if the interest rate increases, the most frequent consequence is that housing costs fall, because a high interest rate means that people need a much larger monthly credit to pay the mortgage, and if the prices do not vary, then people would need exaggerated sums of money to access a middle class house, and very few are willing to do a business with those characteristics.

So, to prevent the mortgage market from running out of buyers for long periods of time, the most common solution is to lower house prices when credit rates go up.

But it is not always this way. Variations in both the cost of housing and the percentage of interest depend on many aspects, therefore the rate/cost ratio is not mandatory.

Whatotheraspects can varythe sales of homes?

Other aspects may affect the homes prices. One of these aspects is the costs of housing construction; If the materials are very expensive, the construction companies must put a price that replenish the cost of the materials, so even if the interest rates go up, the new homes cannot have a lower cost than the one that covers the expenses of the construction.

Something similar happens if the inventory is reduced. If there are few offers of homes in a certain area and a lot of demand on the part of the would-be home buyers, then the prices of households will remain unchanged even if the interest rates increase.

Final Toughts

So, the home sales market will not necessarily be affected by the increase in interest rates, but considering that current rates are still low compared to the highest rates that have been recorded (above 6.5%), then if you currently have a Mortgage loan is not a bad business to talk to your lender so you can block your interest rate.

Now, if what you are thinking about is waiting for interest rates to rise to buy a home at a lower price, think a little better. Buying a house at a lower price may allow you to more easily afford the down payment, but in the long run, the monthly fees at a high-interest rate will be difficult to pay, and when you finish paying the house it will have gone much more expensive than what it costs now.

Can We Save The Universal Ecosystem By Crowdfunding?

Previous article

How SMEs Can Leverage Data to Improve Business Practices

Next article

You may also like


Leave a reply

More in Real Estate