How Do Interest Rates Affect Home Prices? Part 3 of 8 - How To Effectively Price Your Home For Sale

This post will cover the 2nd point of the "How To Effectively Price My Home For Sale"  post:

 

"How Do Interest Rates (Mortgage Rates) Affect Home Prices?"

Interest Rates and/or Mortgage Rates:

Interest rates and home prices always inverse coincide: They affect in opposite directions.  Standing alone, when interest rates rise...home prices decrease.  When interest rates decrease...home prices increase.  Why is that?

It's important to remember that when you borrow money to purchase real estate you don't actually just pay for your house.  You pay the price of your house (Principle) + Interest (along with other costs/fees/expenses).  If you've qualified to purchase a home for $500,000, that qualification is based on your ability to pay all of your expenses. Interest is a huge part of that equation; especially in the early years of your mortgage.  That means that the higher the Interest payment is, the less Principle you can afford; the less home you can afford.  Put this inverse relation into the free market and you create a condition in which low Interest rates afford higher Principle amounts attracting more buyers.  More buyers increases demand.  With the number of homes on the market (inventory or supply) remaining equal, the price of homes increase until the market is in balance again.

Simply put, low interest rates means that it's really inexpensive to borrow money.  So borrow is what the market does!

Circumstances to consider:

• What is the current interest rate?
• How long has the interest rate been at that level? Does history show that we're due for a change?
• Looking at longer term trends in mortgage rates, are we likely to have an increase coming next, or a decrease?
• There is no crystal ball.  The Federal Reserve determines the price of money.  They can and do change interest rates as they see fit.  
• Election gaols, fear, optimism, unemployment, recent economic trends, the state of the affairs domestically as well as over seas, and many more factors are the 'food for thought' that the Federal Reserve uses in determining the cost of money.  If anyone other than the Fed had a handle on interest rates...there'd have been no boom...and no bust in our economy.  

The best we can do is to anticipate, educate ourselves, and make the best decision we can with the information we have as to our home's market value.

Part 3 of 8 to come!

As always, I'll leave you with this tip:

We live in an "information era".  Use the internet AND your personal financial resources (banks, credit unions, etc.) to get informed feedback as to the direction of the mortgage industry.  We can't do any better than that.  At least I can't.

Until next time, and thank you in advance for remembering me when the topic of real estate arises, and THANK YOU SO MUCH all the referrals.

Andy Blasquez ~ The last Realtor you'll ever need to look for.
DRE# 01826135

www.andyblasquez.com

Email me at andy.blasquez@gmail.com
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