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Interest rates are a major driver in the housing market. When interest rates go up the value of homes come down and the opposite is also true. In many cases it is the cost of money that enables people to move up or keeps them from moving up. In other cases it is the value of their current home.

interest rateWhen interest rates are lowered the purchase power of the buyer increases which creates higher buying opportunities. When the volume of sales go up so do the prices of homes as the laws of supply and demand are triggered. This is why it is hard to get a great deal on the next home while getting an equally great deal on the home we are selling, as a rising tide lifts all boats. This is where interest rates again kick in. When the rates climb the value of homes goes down as the demand decreasing when the buying power of the average person is reduced.

When interest rates climb quickly and the climb is dramatic the real estate market cannot always absorb the inventory and the market is likely to slow or in the worst case scenario it could implode as home buyers cannot afford to get in and sellers cannot normally sell for less than their existing mortgage.

Interest rates have been historically low for so long now that the government and banks are concerned that each time they tick up mortgage rates by a quarter point that the market will go from slow to a full stop. Many home owners today have never experienced rates over 6% and the shock of a reasonable rate could cause a dramatic decrease in value and plunge the entire market into another bursting bubble scenario.

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