MYTH# 6: Low Interest Rates

August 20th, 2008 by Matt DiChiara| Posted in Apartment Guide, Rent vs Buy | No Comments »

Reality: Low interest rates may actually serve to make buying more expensive.

It sounds counterintuitive, but low interest rates can actually make housing more expensive, not more affordable. How? Well, if low rates bring a lot of new buyers into the market, housing can turn into a seller’s market. Now that there are more prospective buyers competing for the same houses, sellers can demand higher prices.

So, interest rates may be low, but they haven’t made housing more affordable if they have also pushed up sales prices. Plus, if interest rates increase, the seller’s market could quickly turn into a buyer’s market.

If you paid the peak prices commanded during the seller’s market, you could find yourself having to sell your house for less than you paid for it if higher rates reduce the number of prospective buyers. The lesson here is that while interest rates matter, you should not feel compelled to buy just because they are low. You may be overpaying for that house just to lock in a low rate.

Don’t buy the myths

“I feel safer in an apartment, because other people are around and I like the planned social activities, which are on-site so I don’t have to drive.”

Tracy Harper
Elementary School Teacher
Atlanta, Georgia