What Do Low Interest Rates Mean for the Market?

Unless you've been hiding under a rock for the past 4 years chances are that you've heard a lot in the news about our country's floundering real estate market. First there was the bubble, then an all out crash in some markets, and now we're slowly but surely trying to measure a come-back with home inventories falling by almost 20% in April.

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So with it being so difficult to obtain financing these days, what's driving the revitalization of housing markets? It could be the historically low interest rates.

Buyers

Unfortunately in today's real estate market there are few things that are fun for a buyer following the culmination of a contract. The house hunting is the fun part, but then begins the hurricane of financing.Your lender will expect paperwork detailing almost every aspect of your financial life, and they'll expect it in a timely manner. And then once you think you've surely surrendered everything short of the family pet the underwriter will inevitably request more information.

So for buyers in today's turbulent world of real estate financing low interest rates are a bright light at the end of what begins to seem like a very dark and never-ending tunnel. Receiving a lower interest rate means more than just paying less for the privilege of borrowing money, it also means the possibility of affording a larger home, as your payments are affected by your interest rate.

Sellers

You might have a hard time understanding how a seller benefits from low market interest rates. After all, they're not financing anything in order to sell.

The obvious benefit afforded to sellers through low interest rates is merely the pick-up in market activity that normally accompanies these rate changes. Lower rates mean better affordability for buyers, which means that buyers who weren't in a position to bid for your home before, can now consider it. And the more buyers, the merrier!

An influx in buyers also means more demand in the market, meaning more interest in the property, which could lead to a higher sales price than what you would have been able to expect in a market where demand is low.

Last week some lenders were advertising interest rates as low as 3.75%, a rate that would have been completely unheard of just a few years ago. With some statistics showing more demand in the market of late, these low interest rates could play a hefty role in the return of the housing industry, a benefit to both buyers and sellers at this stage.