Buying a house is seen as an investment decision. Whether you are flipping a house, renting one or purchasing one to live in, you see this purchase as an investment decision that will be expected to give you financial benefits in the future. However, there are a number of factors that affect the value of your property and your ability to make a profit on this investment. One of the factors affecting it is the fluctuations in interest rates.
When studying the impact of rising interest rates on any market it is essential to know what the driving force behind the rise of interest rates is. Generally, interest rates rise due to inflation and thus in order to understand the complete effect of interest rates on real estate market it is important to consider the effect of inflation as well. In this article, however, we will discuss the general impact that a rise of interest rates has on the Real Estate Market.
Effect on the Buyer
We will first discuss the impact that rising interest rates have over the buyer in a real estate market. As the interest rates rise, it becomes difficult for the buyer to get loans at an affordable rate. This makes the buyers reluctant to take any big decisions and lowers the demand for properties from the buyer’s perspective.
Trend of Interest Rates over the Years
The interest rates have been on a rise since 2016 after seeing a downfall from the year 2011 to 2015. As the interest rates increase, the real estate market will be expected to face a reduced demand.
Relationship between Credit Score and Interest Rates
Your credit score has a big impact on your ability to take out a loan. One factor that carries immense significance in the eyes of the lender is your ability to pay back the loan. This ability to pay back the loan is seen reflected by your credit score that you have succeeded in maintaining. A credit score reflects the history of your repayments and hence cannot be changed if you have made bad decisions in the past. It is important to understand how a high credit score can affect your ability to take out a loan. By making payments on time you can succeed in having a high credit score.
Even in case of high-interest rates banks can offer you the ideal interest rate if you maintain a high credit score. Generally, a credit score of 700 and higher is considered to be a good credit score to be maintained. Hence if you have a good credit score you can still manage to take out a loan at a reduced rate.
In the end, you can conclude by reading the article that the impact of interest rates on the real estate market is not a simple one and in order to understand or predict this impact, one needs thorough research and detailed knowledge about the different factors involved in the process.