December 23, 2022

What Factors Are Currently Affecting Interest Rates in Real Estate

Interest rates in the real estate market have experienced a slight dip recently, and it is fair to wonder what is driving this shift and if it will continue given how high they currently are. The real estate market is complicated with a vast array of factors that can affect it, but a few key players are helping to drive down interest rates. Some economists believe that the decrease in unemployment is causing a corresponding reduction in interest rates. Likewise, some also think investors are holding off on investing because the economy is enjoying its longest growth streak of about ten years.

Factors Affecting Interest Rates in Real Estate

1. Unemployment

Many believe that the unemployment rate is a critical factor in the decreased interest rate in real estate. The unemployment rate has dropped nearly nine percent since January 2019, down almost two percentage points since December 2016. With more excellent job opportunities on the horizon, some investors are choosing to flood into real estate rather than gamble on more uncertain markets.

2. Consumer Credit

Consumer credit is vital because it can impact everything from interest rates to home prices and wages. Housing affordability is affected when more people have debt, as there is less disposable income to pay for an increasing debt pile. As a result, people spend less money on housing, real estate prices drop, and investors are less willing to finance housing.

3. Investor Confidence

Investors have very different reasons for investing in the real estate market than the average person, so it is essential to consider their perspective when speaking about interest rates. Investors tend to look at risk and return very differently than everyday people do, making them more sensitive to interest rates, salaries, and inflation risks.

4. Mortgage-to-Income Risks

Mortgage-to-income risks are a significant factor in the market because they can significantly affect every other one of these factors. For instance, interest rates affect the market and mortgage payments, which explains why investors are investing less than they used to.

5. Wage Growth

A growing economy is expected to lead to more jobs and higher wages, increasing the affordability of homes and decreasing mortgage liability. Interest rates may decrease. As a result, homeowners can spend more money on a home while still making mortgage payments.

Many of these factors are interconnected and cannot be accounted for independently. For instance, it is only possible to know how much of a role the drop in unemployment played by considering the decline in interest rates that occurred concurrently with it. Despite the intricacies involved, economists and analysts will continue to study the real estate market to make accurate predictions about what is happening and what is likely to occur. Work with an expert City of Westlake realtor today to ensure you cover your bases when it comes to all things buying, selling, and investing in real estate.


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