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Seems counter intuitive, I know. Traditional thinking would tell you that lower mortgage rates gives buyers more spending power, bringing more buyers to the market, and driving up prices. But what about all the people with 3% mortgages who would like to upgrade to a larger house, but the thought of paying 8% interest on a more expensive house keeps them put? Would a significant drop in rates, say down to 4.25% or so, cause a wave of houses flooding the market as people look to upgrade?
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Impossible to predict accurately when and if it will. As interest rates drop, more buyers usually can afford bigger/upgraded homes that they previously could not afford. As inventory of available/affordable homes is reduced, prices tend to go up. We haven't seen the building booms that were more common prior to the big housing collapse around 2005-2007.
Seems counter intuitive, I know. Traditional thinking would tell you that lower mortgage rates gives buyers more spending power, bringing more buyers to the market, and driving up prices. But what about all the people with 3% mortgages who would like to upgrade to a larger house, but the thought of paying 8% interest on a more expensive house keeps them put? Would a significant drop in rates, say down to 4.25% or so, cause a wave of houses flooding the market as people look to upgrade?
IMO, Yes. It would stimulate the housing market considerably.
My guess would be higher demand for larger more luxurious homes or homes in more expensive areas if and when rates drop significantly. Since it's been several years since many families have been in cheap mortgage prison and simply couldn't justify an upgrade. But there have been many housing downgrades where homeowners paid off their cheap mortgages and used the remaining equity to pay for their lower priced; new homes in cash. Of course this is all a big guess.
IMO, Yes. It would stimulate the housing market considerably.
Might result in more listings as people are more willing/able to buy something new... but I wouldn't expect it to bring prices down (which was the original question). If anything, I'd expect prices to go up as people see 'how much more house they can afford' due to the lower interest rate.
Might result in more listings as people are more willing/able to buy something new... but I wouldn't expect it to bring prices down (which was the original question). If anything, I'd expect prices to go up as people see 'how much more house they can afford' due to the lower interest rate.
Low interest rates created much of the extreme fervor in the markets and pricing pre-2023.
Significantly lower interest rates would certainly revitalize and increase demand and buyer competition, without assurance of increase in supply. Supply was an issue vs. demand in most markets during almost all of the frenzied <4% interest rate period.
If anything, I would expect that demand increase spurred by any significantly lower interest rates would put upward pressure on prices, and particularly if supply of homes to purchase does not outstrip demand created.
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Here, I think it would have the opposite effect. Currently homes here are still selling quickly at or above asking because inventory is so low and so many have cash, so interest rates make no difference. When the interest rates drop, many more buyers will jump into the competition, and while there may also be more homes for sale, it will still not be enough. Today our median home is at 1.46 million, down only .3% from before the interest rates jumped.
I also expect that in the less expensive areas where there are "starter" homes the prices will go up because so many first time buyers will suddenly be unleashed. Except in a recession like 2008, home prices and interest rates tend to balance out in favor of the sellers, you rarely see low prices and low interest rates, but like now, you do see high prices and high interest rates.
The interest rate is in the 6s currently. In Metro Denver days on market was 34 in December, now that interest rates are lower days on market is 19. Anything less than 90 days is a sellers market where buyers are competing. Where there is competition for property, buyers get creative.
Well, one could possibly construct a theoretical scenario where it could happen the way OP imagines it (lower interest rates induce enough people who want to move, to place their houses on the market, that it drives prices down (a BIT). But let's consider that the insanely low interest rates of the last 10 years have stimulated such a frenzy of house buying that there just can't be that much pent-up demand. I think the pattern of the recent past would be repeated.
Keep in mind that owner-occupants aren't the only factor. For example, decrease interest rates and houses will look like a more appealing investment to investors, who will start buying again, increasing demand and creating upward price pressure.
No. Pricing goes down when supply outstrips demand.
Interest rate (according to people that seem to know better) aren't always correlated.
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