Since it seems like house prices are on a never-ending elevator, going higher and higher every year, it’s understandable if you become excited when they take a dip. After all, lower house prices means you can afford a better home or even start thinking about it when it wasn’t an option before.
However, like with most good things there may be a downside to the equation. Since house prices and mortgage rates are so closely connected, you might see a rise in rates if the prices fall.
If Prices Tumble
If the price of houses goes down, lenders will be faced with less revenue overall because home buyers have less to repay. This may result in a rise in the mortgage rates, to help balance things out and cover the difference. The axiom, “if they don’t get you one way, they’ll get you another,” seems to apply when it comes to house prices and interest rates.
That’s not to say that paying less for a home is a bad thing, but keep in mind it may be followed by a jump in the rates to even it all out. It all has to do with supply and demand and whether the rates or the prices seem to be higher at any given time. It doesn’t take a financial genius to figure out that if both house prices and mortgage rates are high at the same time, the demand for homes will plummet, causing new problems for the economy. For the average person, keeping track of all the various factors that influence the real estate industry is nearly impossible, which is why real estate professionals have jobs.
When to Take Action
It is important to make your move at the right time, but first you have to decide that you’re ready and willing to buy a home. Favorable prices and/or rates are great, but if you won’t be ready for six months or longer, there’s only so much you can do.
Try to stay on top of the situation as much as possible, and stay in regular touch with your mortgage broker, or someone else who follows the trends. The prices aren’t likely to fall overnight, just as the mortgage rates aren’t likely to make a big jump overnight. If you’re informed and ready to make a move when the right combination of price and rates comes long, you’ll find a home you like and get the best deal possible.
