The effect of falling interest rates on the real estate market

Falling interest rates have a profound effect on various aspects of the real estate market, most notably mortgage affordability, home buying, refinancing activity and property investment decisions.

Lower interest rates make borrowing cheaper, increasing mortgage affordability for buyers. As monthly payments drop, prospective homeowners are often able to afford more expensive properties or stretch their budgets in competitive markets, driving increased demand. This surge in demand can push home prices higher, further fuelling the market’s momentum.

For existing homeowners falling interest rates present a golden opportunity to refinance their mortgages. Lowering their interest rates can result in significant savings over the life of their loan or allow them to shorten their mortgage terms without dramatically increasing monthly payments. This refinancing activity can also free up cash for homeowners which they may reinvest in property improvements or other investments.

From an investment perspective, cheaper borrowing costs make real estate a more attractive asset class. Investors are incentivised to purchase properties as their potential returns, boosted by lower debt servicing costs, become more appealing. This leads to an increase in property acquisitions, especially in high-demand markets. However, if rates are too low for too long, the resultant surge in demand can create bubbles in certain markets, pushing prices to unsustainable levels.

To summarise, falling interest rates can stimulate the real estate market across multiple fronts, but they also require careful monitoring to avoid overinflated property values and unsustainable levels of debt.

Yan Davies, a long-time North Shore local, has amassed a wide network of quality clients and superior knowledge of the area. She is an active Milford Cruising Club member. She works hard for her clients, driven by a sense of duty to provide a high level of service. She holds a Master's Degree in business and administration and speaks English and Chinese fluently.

Yan Davies 燕
021 585 590
yan.davies@bayleys.co.nz
Licensed under the REA Act 2008

唯一华人中介@ Bayleys Takapuna


Issue 158 November 2024