Real estate mortgages – Lower interest rates are easy to understand as lower rates lead to additional buying power for products that normally require financing, such as cars and houses. Lower rates equate to lower monthly payments. When people have “additional” buying power due to lower rates they are empowered with added purchasing power which leads to a possible imbalance in the supply/demand ratio, which normally leads to an increase in prices, which is currently happening to the price of houses.
With interest rate at historically low levels, more people are able to qualify for real estate mortgages and are able to buy higher priced homes than if interest rates were at higher levels. Also when interest rates are at such low levels potential buyers develop the attitude that “they don’t want to miss-out” on the low mortgage rates so even if they were not intending to purchase a home for a year or more in the future they often move up their buying plans to get in on the low rates. The effect of this psychological mindset contributes to additional supply/demand imbalance.
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