Interest Rates vs Home Prices

Chelsea Ialeggio
Feb 1, 2022

How Rates Affect Home Prices

We are in an unprecedented time of historically low interest rates. With these low rates, homeownership is more attractive and more accessible to a greater number of buyers. Before you think about purchasing a home and securing a low rate it’s important to know what effect low rates have on home prices, and what happens when these rates increase.

Low rates encourage borrowing and allow more people to qualify for a mortgage. When there are more qualified buyers and a larger buyer pool the market moves in favor of the sellers. When there are more buyers than homes available in a given area it is considered to be a Seller’s Market, and the result is a more competitive marketplace where buyers move fast and make offers above list price. 

Today’s low rates paired with low inventory are incentives for buyers to move fast. Mortgage rates are projected to increase three times over the next year. As rates increase, buyers will be looking at increased monthly payments and their purchasing power may change.

Increasing rates will slow the growth of new buyers, and as a result the price of homes could slowly trend down. In the event that there are more listings in a given area than buyers, the market is then considered a Buyer’s Market.

Higher rates equate to greater costs for buyers, so the buyer’s purchasing power is reduced. As a result the price of homes will adjust accordingly. 

There is an inverse relationship between interest rates and home prices.

When rates are low it drives the price of homes up due to the greater number of buyers in the market. When rates are high, the price of homes decrease due to the lower number of buyers. 

We anticipate the housing market to remain solid in the coming months. Even as rates tick up, they are still historically low.

Securing a low rate on a 30-year fixed mortgage could be a great opportunity to save money and build equity, but it’s important for consumers to consider the number of options and different financial products available.

We strongly encourage you to talk with your financial advisor to determine the timing and the rates that work best for you and your financial situation.

If you have any specific questions please share them with us at We’d love to hear from you, and we’re here to help!

Aalto is a real estate broker licensed by the State of California, License #02062727 and abides by Equal Housing Opportunity laws. This article has been prepared solely for information purposes only. The information herein is based on information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy of the information. Aalto disclaims any and all liability relating to this article.

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