Interest rates, although not directly, can play a big role in whether home prices rise or fall.
Since we’re talking about predictions here – let’s just pretend that interest rates increase.
It is generally accepted that rates cannot stay this low forever. When the government stops intervening and forcing rates down….They will go up.
We’ve been expecting this increase of interest rates since 2010….although rates have increased, not to the degree that most expect.
This past week, we witnessed a historic drop in mortgage interest rates, again – has this affected home prices? No, not really, not directly anyway.
Interest rates are very volatile and can move up and/or down several times a day. This movement over the short term typically will not affect home prices.
A decrease of interest rates
When interest rates go down, activity normally increases. Interest rates are being held so low to try to motivate consumers to apply for and spend money.
That’s a “normal” market. In 2011, we are looking at home sales volume in California to dip below 2010 levels. Much of this is concern about the economy and our government leaders.
Interest rates are as low as they’ve pretty much ever been, and still home prices are a steady or declining in many markets, as does buyer demand.
An increase of interest rates
When interest rates increase, you can expect home prices and home values to drop even further in 2011 and 2012.
There is little argument about whether or not interest rates will increase, the question is when.
If unemployment is still a concern, if the economy is still fragile – you can almost bet your bottom dollar that demand for home loans will go down, followed by home prices.
Housing inventory is a major influence in home prices, and so is demand for homes to buy.
When buyer demand drops, and if inventory continues to grow (shadow inventory), we could be looking at a significant drop in home prices and home values in many areas through 2011 and 2012.
Keep in mind that all markets are unique and most statistics and numbers you hear about the market does not necessarily apply to your local housing market.
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