What happens when mortgage interest rates go down?
Mortgage interest rates play a crucial role in the housing market. They determine the cost of borrowing money to purchase a home, and changes in these rates can have a significant impact on the affordability of housing and the overall health of the market. In recent years, interest rates have been on a rollercoaster ride, with periods of both highs and lows. In this article, we'll take a closer look at what happens when mortgage interest rates go down and the impact it can have on the housing market.
When mortgage interest rates decrease, it can make it more affordable for individuals and families to purchase a home. This is because the monthly mortgage payments will be lower, making it easier for borrowers to afford the cost of a home. As a result, home buying activity tends to increase when interest rates drop. This can be seen in historical data, such as the period between 2008 and 2012 when interest rates hit historic lows, home sales increased by over 20% year-over-year.
The relationship between interest rates and home values is also worth noting. When interest rates drop, it makes it more affordable for people to buy homes, which can lead to increased demand for housing. This increased demand can cause home values to rise as well. According to data from the Federal Reserve, in the period of low interest rates between 2008 and 2012, the median home value in the United States increased by over 20%.
Homeowners with adjustable-rate mortgages (ARMs) may also see a decrease in their monthly mortgage payments if the interest rate on their mortgage decreases. This can provide some relief for homeowners who are struggling to make their monthly mortgage payments. However, it is important to note that while ARMs may have lower rates initially, they can adjust upward over time and may ultimately end up costing more than fixed-rate mortgages.
In conclusion, when mortgage interest rates go down, it can make it more affordable for individuals and families to purchase a home, leading to increased home buying activity and rising home values. However, it's important to consider the long-term costs of a mortgage, and whether an adjustable-rate mortgage is right for you.