When Rates Increase
When mortgage interest rates drop, many homeowners will often refinance, but not necessarily buy new homes. When interest rates slowly begin to rise, the sale of new homes seems to increase. For example in Canada a few years ago, interest rates reversed themselves and increased by two points. Canadians went on a buying spree with real estate sales increasing by 50 percent across the country.
The two percent hike did not signal the end of the recession, nor did the buying spree have any impact on home prices, but it did give a dramatic preview of what happens when rates change direction. Low interest rates over the long range are good for home buyers and sellers, but those who are waiting for lower rates may be making an oversight.
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