Housing Prices or Interest Rates: Which Is More Important When Buying a Home?

By Mark Spain Real Estate

When it comes to buying a home, many different financial factors come into play. One of these factors, of course, is housing prices, or the total amount you will pay for a home. Another is interest rates, the amount you’re charged to take out a mortgage. 

As a home buyer, both interest rates and housing prices will affect your affordability. However, many house hunters wonder if one matters more than the other when buying a home. At Mark Spain Real Estate, our experts offer valuable industry expertise to help you make informed decisions as you shop for homes. Below, we provide a comprehensive breakdown of how housing prices and interest rates affect your home purchase. 

Housing Prices or Interest Rates: Which Is More Important When Buying a Home?

Do Interest Rates Affect Housing Prices?

Interest rates and housing prices have an inverse relationship. Rising interest rates cause buyers’ affordability to drop, leading to a decrease in housing prices. In contrast, falling interest rates increase buyer affordability and subsequently increase housing prices. As a home buyer, it’s important to remember that market conditions constantly change. So, while you should pay attention to these trends, think of them more as guidelines rather than concrete rules. 

In recent years, interest rates have been consistently low, driving housing prices to record highs. Many attribute these trends to the pandemic, which led to a refinancing boom in subsequent years. However, the economy has steadily stabilized in the past two years, yielding less drastic interest rates and housing prices. 

How Do Housing Prices and Interest Rates Affect Home Buyers?

Housing prices and interest rates are critical in a home buyer’s decision-making process, especially if they’re first-time buyers. If interest rates or housing prices are skewed too high, a first-time home buyer might delay their house hunt and wait for more optimal market conditions. 

A first-time home buyer can avoid making common mistakes and time their purchase perfectly by conducting market research. If you’re considering buying a home soon, consider how the interest rates and house prices will affect the following factors: 

Down Payment

Generally, the down payment standard when buying a home is 20% of the sale price. As housing prices rise, so does your down payment. For example, if you’re buying a home for $200,000, you’ll owe a down payment of $40,000. However, if interest rates increased and that home dropped to $150,000, your down payment would decrease to $30,000. 

Monthly Payment

Housing prices and interest rates both will impact your monthly mortgage payments. If you buy a higher-priced house, you will have a larger monthly payment. And if interest rates are high, the payment will be even more expensive. It’s important to note that even the smallest increase in interest can highly affect your affordability. A good rule of thumb is to use a mortgage calculator to determine your affordability based on current market conditions. 

HOA Fees

Certain homes, particularly those in luxury neighborhoods, will have monthly homeowner association fees covering shared services like lawn maintenance, clubhouses, pools, and other community amenities. For higher-priced homes, HOA fees tend to be more expensive. As a home buyer, you’ll want to account for HOA fees in your monthly payments alongside your mortgage installments.

Interest Rates vs. Housing Prices: Which Matters More?

There is no right answer when weighing interest rates and housing prices. In an ideal world, you would buy a home when both interest rates and home prices are low. However, it’s safe to assume that market conditions won’t always work in your favor. Ultimately, prioritizing interest rates over housing prices, or vice versa, depends on your financial standings and priorities as a buyer. 

If you’re focused on buying a bigger home, you may start your house hunt when interest rates are lower to afford a higher-priced listing. However, if you’re more focused on getting the lowest monthly payments possible, you might buy a less expensive home to refinance more easily. The best rule of thumb is to calculate both the short and long-term costs of lower interest rates vs. lower housing prices and take the route that best fits your financial goals. 

Buying a Home with Mark Spain Real Estate

Looking for a real estate agent to help sell your home? The industry professionals at Mark Spain Real Estate are here to set your listing up for success. With decades of industry experience in some of the southeast’s most popular markets, our team of expert listing consultants can help you start your next chapter! Check out our Guaranteed Offer Program for the potential to receive a competitive cash offer on your home in only 21 days. Contact our agents today!

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