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.