How Interest Rates Affect The Real Estate Market

The real estate market is not always determined based on interest rates. However, interest rates do play a role in the market conditions and environment.

The reason interest rates play a role in the marketplace is primarily affordability. This applies to both homeowners and investors. As interest rates go down, the monthly payment and overall debt service reduces, and therefore allows a person's fixed income to go further. It also allows the cash flow of an investment property to increase due to the monthly payment being substantially lower than with a higher rate, and thereby taking more to the bottom line. On the other hand, as interest rates rise, the coin flips. The buyer who could make their income buy a house for three hundred thousand may now only be able to afford a two hundred and fifty thousand dollar house. Also, the investor must reduce the amount of debt they take on in order to not lose money on the monthly cash flows.

Since 1971, the historical average of mortgage rates is hovering around the five and a half percent to six percent range. Today's rates, at the time of this writing, are fairly average in comparison to the historical mortgage rates. So, take this information into consideration when listening to the news and media as they scream about the downfall of the economy.

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Chase Melton CEO: chase@westcarproperties.com

Maggi Martin: maggi@westcarproperties.com