Very low mortgage interest rates are associated with decreased home values; but when interest rates go up, so do home prices.
Does that make sense to you?
If your answer is no, you’re not alone.
The Federal Reserve had been buying up bonds, in order to keep mortgage interest rates low and entice home buying. In fact, though they brought the rates down to historic lows, there was a mediocre consumer response.
Now that the market is showing signs of a strong recovery, mortgage interest rates are rising, and so are home sale prices. Therefore, the buyer is paying more, both for the house and the mortgage.
Now, considering that a home is a long-term investment for most buyers, an increase in mortgage rates would theoretically lower buyer interest in purchasing, as the higher rates mean lower future profits for the buyer.
But the real estate market has, in fact, serious buyer interest, with many area homes receiving multiple offers. Why aren’t buyers being discouraged by the increase in mortgage interest rate?
Like most every other business entity, mortgage rates are set by supply and demand. And for interest rates, supply and demand are determined by inflation and economic growth. More people have jobs than before, which is a signal of a strengthening economy. This has driven up interest rates, and now that people have jobs again, they can actually afford to buy homes.
It seems that you can remove a decreased home value due to rising interest rates from your list of worries.
Have questions or comments about buying or selling a home? Please e-mail firstname.lastname@example.org. Your question may be featured in a future Baltimore Guide home buyer/seller Q & A.
Mario Vallone is a Realtor for Coldwell Banker Residential Brokerage in Inner Harbor.