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If Rates Are Low Why Are Home Prices Rising?

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Economics

If Rates Are Low Why Are Home Prices Rising?


October 19, 2020
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Photo: stockadobe.com

Homebuyers counting on a coronavirus discount never saw one as selling prices rose by double-digit rates. 

The combination of what could be the lowest mortgage rates of our lifetimes, a paucity of inventory, and a desperate rush of buyers has resulted in median home list prices hitting new records. Prices were 12.2% higher than they were a year earlier for the week ending Oct. 10, according to realtor.com® data.

Homes "are selling the day they go onto the market above asking price," says Ali Wolf, chief economist of Zonda, a national real estate consultancy. "If a buyer wants to win the bid on a home, they have to offer above asking price."

In this economy, mortgage rates matter more than the unemployment rates and with interest rates as low as 2.81%, buyers are willing to stretch their budgets and purchase a bigger house with large home offices and backyards. But what will happen with mortgage interest rates go up? Real estate experts say that selling prices probably won’t increase as much, as the pool of buyers able to afford a higher monthly mortgage payment would decline. Then houses would stay on the market longer, so sellers might be willing to take less than the asking price.

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