Interest Rates And Real Estate Values
Posted by Techyscouts | Posted on 06/30/2015
Will Rising Interest Rates Affect the Value of LA Real Estate?
The Federal Reserve has long been teasing a rise in the federally mandated interest rate, but it looks like 2015 might finally be the year we see it happen. This has many Los Angeles homebuyers rejoicing, as a lot of conventional real estate wisdom says that as interest rates rise, housing prices fall – the logic being that if mortgage rates are more expensive, real estate prices must fall to compensate. But is that really true? For this blog, we’ll take a quick look at the relationship of the interest rate to housing prices to see if this belief stands up in the real world.
Interest Rates – Not As Relevant As You’d Think
If we look to historical data, there’s not a lot of support for linking mortgage rates to house prices. While the interplay of factors that affect real estate pricing is complex, on the whole, larger factors like overall economic climate and demand for housing have a much more profound effect on housing prices than do federal interest rates. The flaw in the conventional wisdom is that interest rates tend to rise as the economy gets stronger – and if the economy gets stronger, people have more money and can afford pricier houses. This pokes a hole in the “affordability maintenance” idea. And it’s born out in the data – if we compare the average 30-year federal rate with the House Price Index over the last 25 years, we see that house prices tend to move in the same direction as mortgage rates – not the other way around.
Contact Your Los Angeles Real Estate Specialist
Have more questions about interest rates and real estate in LA, or want help with your own real estate needs? We’re here for you. Feel free to reach out to us at our contact page and don’t forget to check back to this blog periodically – we’ll be updating it with more useful info and tidbits on real estate in all its forms in the greater LA area and beyond.