How Do Interest Rates Affect the Housing Market?

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Interest rates have a pretty big affect on the housing market. Obviously the higher that an interest rate is, the more difficult it will be to pay a mortgage. There are other factors at play as well such as inflation. The way that the government fights against inflation is to raise interest rates. Affordability can affect the housing market but not as much as one would think. At the end of the day, the housing market is always going to be in high demand as people need places to live.

Key Takeaways:

  • Interest rates are very low right now but they are still above the Feds target rate of 2% over inflation.
  • The higher an interest rate, the less affordable a mortgage will be for most borrowers.
  • When it comes to affordability, it will affect the housing market but not as much as you’d think as there is always demand.

“The government’s primary tool to battle inflation is raised interest rates, which works by reducing the supply of money in the economy. And while this tactic tends to work at managing inflation, rising interest rates can slow or perhaps even reserve gains in property prices.

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