I’m a layman, not an expert by any means but wouldn’t interest rate increasing mean spending, including buying property, decrease? Would that not mean that house prices would fall to intice more spending?
I understand currently interest rates are normal zing or falling but hasn’t this been the case for many years now since COVID lockdown?
In: Economics
In general, you would expect higher interest rates to lower housing prices. However, there are two things to keep in mind:
* Firstly, the higher interest rates lower housing prices compared to what they would be in an alternative reality where the interest rates were lower, not compared to the housing prices in years past. If the fundamentals were in place for a larger increase, the interest rate can reduce the increase, while house prices still increase compared to the past.
* Secondly, housing has a dynamic where sellers will just choose not to sell if they can’t get a good price, because they can’t sell if the sale price doesn’t allow them to pay off their mortgage and get new housing elsewhere, which lowers demand and mitigates potential price drops. You’d need mass foreclosures to really see a drop because of this dynamic, and the banking world has been a lot more strict on who they’ll lend money to because they don’t want another subprime loan crisis on their hands, so that doesn’t seem likely.
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