Interest rates play an important role in every investment. Borrowing money at the right interest rate can be the difference between the investment being profitable and turning out poorly. Investors realize this which is why they are so sensitive to fluctuations in interest rates.
This brings me to my next question, which is, how do rising interest rates effect house prices? From a purely economic view, rising interest rates should decrease the value of houses. When money is more expensive to borrow, the overall cost of the loan increases. Additionally, the amount of the monthly payment also increases, everything else being equal. As a result, buyers are not willing to pay as much for the property.
Rising interest rates can also indicate that the market is recovering. When this occurs, the market can be slow to react to rising rates. It's also possible, that, in the mind of the investors, the market is improving at a greater rate than interest rates. This leads to house prices that increase even as interest rates climb. From what I have seen, we are seeing a great deal of this today.
The relationship between market movements and interest rate movements will depend on which market you are investing in. One important thing to keep in mind is that interest rate movements will not have the same effect on every market. Booming markets are less susceptible to interest rate sensitivity. Smaller, tertiary markets are much more likely to slow down due to a rise in interest rates.
One final note on interest rates before I head to bed. Interest rates have risen significantly over the past three months. Nobody can argue that. Lets not lose sight of current rates from a historical perspective. In the grand scheme of things, interest rates are still incredibly low. It's possible that we will not see comparable interest rates in our lifetimes. Some deals are not financially feasible any more. However, there are still plenty of deals getting done everyday. So lets get out there and make some deals!
This brings me to my next question, which is, how do rising interest rates effect house prices? From a purely economic view, rising interest rates should decrease the value of houses. When money is more expensive to borrow, the overall cost of the loan increases. Additionally, the amount of the monthly payment also increases, everything else being equal. As a result, buyers are not willing to pay as much for the property.
Rising interest rates can also indicate that the market is recovering. When this occurs, the market can be slow to react to rising rates. It's also possible, that, in the mind of the investors, the market is improving at a greater rate than interest rates. This leads to house prices that increase even as interest rates climb. From what I have seen, we are seeing a great deal of this today.
The relationship between market movements and interest rate movements will depend on which market you are investing in. One important thing to keep in mind is that interest rate movements will not have the same effect on every market. Booming markets are less susceptible to interest rate sensitivity. Smaller, tertiary markets are much more likely to slow down due to a rise in interest rates.
One final note on interest rates before I head to bed. Interest rates have risen significantly over the past three months. Nobody can argue that. Lets not lose sight of current rates from a historical perspective. In the grand scheme of things, interest rates are still incredibly low. It's possible that we will not see comparable interest rates in our lifetimes. Some deals are not financially feasible any more. However, there are still plenty of deals getting done everyday. So lets get out there and make some deals!
RSS Feed